Sellers, Fred

From:
Sent:
To:
Subject:
Attachments:

Bergeron, David
Monday, January 11,2010 7:32PM
Sellers, Fred; Kolotos, John; 'Robert.Shireman@ptt.gov'; Madzelan, Dan
Fw: Negotiated Rulemaking - Gainful Employment
Economic Value of Devry Education_example.pptx

Haven't had a chance to look at this as we were negotitating until5. Got through 7 issues today with 2 tentative
agreements.
David A. Bergeron

Sent using BlackBerry

-------------------------------------------------------------------------------------

-From: Babel, Tom <Tbabel@devry.com>

To: Bergeron, David
Sent: Mon Jan 11 13:02:05 2010
Subject: Negotiated Rulemaking - Gainful Employment

Hi David,
Happy New Year. I'm following up on our conversations in Nashville and DC last month related to the measuring gainful
employment. As discussed, DeVry certainly supports informed decision-making and shares the Department's concerns
that students' debt burdens should be justified by future earnings potential. This is not only a concern of staff and senior
management at DeVry, but also that of our Board of Directors. Attached is a copy of the model we use to measure a
student's return on investment. We measure for both total tuition cost as well as for average debt load. We do this
annually for each school within DeVry Inc. You will note that, like your proposals, we look at incremental return over t hat
of a high school graduate. But, unlike your proposals, we also look at the return over a conservative estimate of lifetime
earnings (30 years). We believe t)lis is a more accurate reflection of earnings potential and a much fairer representation
of the return on investment. Please note that the data used in this slide is for exemplary purposes only.
While the terminology arid calculations in this model may be too complicated for many incoming freshman to fully grasp,
we believe a simplified version of this model can be developed for students' use. We believe this is a much fairer
alternative to limiting the amount of loans that a student may be able to receive. Thanks for listening, I'm happy to
answer any questions either before or during the next round of negotiations (I will be in the audience).

Tom
Thomas Babel
Vice President
Student Finance Policy and Industry Relations
DeVry Inc.
One Tower Lane, Suite 1000
Oakbrook Terrace, IL 60181
p: 630.706.3140
f: 630.574-1963
e: tbabel@devry.com
www.devry.edu

---~-

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Sellers, Fred
From:
Sent:

To:

Cc:
Subject:
Attachments:

Scott Levy [levy.scoft@mac.com]

Wednesday, February 17, 2010 5:56PM
Sellers, Fred; McCullough, Carney
Deanne Loonin

ruling in incentive compensation lawsuit, United States ex rei. Lee vs. Corinthian Colleges et
al, No. 07-01984, Central Dist. of California, Los Angeles Division
Corinthian - Complaint. pdf; Corintian [Order of Dismissal).pdf

Dear Counsel:
This U.S. District Court in Los Angel es dismissed the qui tam lawsui t against Corinthian
Colleges in December 2B89. The court ruled that the suit does not allege that recruiters
were pai d "solely" based on success in securing enroll ments, based o~ the. fact that
recruiters with an " ~xcellent" evaluation were given higher raises than recruiters with only
a "good" evaluation.. The recruiter compensation schedule details the enrollment quota for
each category of recruiter, which is attached to the complaint.
Very truly yours,
Scott D. Levy

.
=-

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MARK I. LABATON (CA BarNo. 159555)

HILARY B. TAYLOR (CA Bar No. 203796) .
2 KREINDLER & KRElNDLER LLP
707 Wilshire Boulevard
3 Suite 5070
Los Angeles, CA 90017
.4 Telephone: (213) 622..:6469
Facsimile:. (213) 622-6019
5 Email:
mlabaton@kreindler.corn
htaylor@.Icreindler.com
1

.:

SCOTT D. LEVY
LAW OFFICES OF SCOTT D. LEVY
1010 Lamar St.
8 Houston, Texas 77002
Telephone: (713) 877-0808
9 Facsunile: (713) 877-0809
7

Email:

10

....
. .

scottdlevy@sbcglobal.net

-:.

Attorneys for the Relators

11

12

UNITED STATES DISTRICT COURT

13

FOR THE CENTRAL DISTRICT OF CALIFORNIA

;;
16

WEsTERN
UNITED STATES OF AMERJCA ex
rei. [Under Seal],
Plaintiffs,

17
18

19

Civii Case Number:

COMPLAINT FOR VIOLATION OF

FEDERALFALSECLADMSACT

JURY TRIAL DEMANDED

v.

FILED UNDER SEAL

PURSUANT TO THE FALSE
CLAIMS ACT [31 U.S.C. 3729 et
seq.]

20

[Under Seal],
21

mC{,Olf?- 019 s 4 fse--(jhr!:

Defendants .

.22
23
24
25
26

27

28
201094.1

COMPLAINT F.OR FALSE CLAJMS

~ .

MARK I. LABATON (CA BarNo. 159555}

HILARY B. TAYLOR (CA Bar No. 20379.6)
2 KREINDLER & KREINDLER LLP
707 Wilshire Boulevard
3 Suite 5070
.
Los Angeles, CA 90017
4 Telephone: (213) 622-6469
F acstmile: (213) 622-6019
1

Email:

mlaoaton(a)Jcreind1er.com
htaylor@Kieindler.com

'

SCOTT D. LEVY
LAWOFF1CESOFSCOTTD. LEVY
1010 Lamar St.
8 Houston, Texas 77002
Telephone: (713) 877-0808
9 Facsimile: (713) 877-0809

Email;

10

scottdlevy@sbcglobal.net

Attorneys for the Relators

11
12

13

UNITED STATES DISTRICT COURT

14

FOR THE CENTRAL DISTRICT OF CALIFORNIA

15 .

WESTERN DIVISION

16
17

UNITED STATES OF AMERICA, g

rei. NYOKA LEE and TALALA
:K1SHUJA

18
19

Civil Case Number:

COMPLAINT FOR VIOLATION OF

FEDERALFALSECL~SACT

Plaintiffs,

JURY TRIAL DEMANDED

v.

FILED UNDER SEAL

PURSUANT TO THE FALSE
CLAJMS ACf [31 U.S.C. 3729 et
seq.]
.
:~

24

Defendants.

25

26
27
28
201094.1

- 1COMPLAINT FOR FALSE CLAJMS

....
1

Relators/plaintiffs Nyoka Lee and Talala Mshuja (collectively "Relators''),

reserve the right to make additional allegations to plead additional allegations and

claims to correspond to the oveiWhelming evidence relators have based on their

personal knowledge and documents they have already provided or will soon

provide to the United States. Based on personal knowledge and information and

belief, they allege as follows:

SUMMARY OF TilE ACTION

1.

8
9

Relators bring thls action on behalf of the United States of America to

recover damages, civil penalties, and other relief arising from false claims and

10

false statements made in violation of the Federal False Claims Act ("FCA").

11

Congress enacte~ the FCA in 1863 to combat war profiteering, and last amended it

12

in 1986 to stem pervasive fraud.

2~

13

'

Corinthian Colieges ("Corinthian,), a public company headquartered

14

in Orange County, operates for-profit vocational schools throughout the United

15

States. It is one of the largest and most profitable such companies in the United

i.

16 .States, and bas net revenues exceeding one-half billion dollars a: year.

3.

17

These "technical schools" promise claim to train students for jobs at

18. companies like IBM;. Cisco Systems, and Kaiser Permanente. But, when, and if,
19

the students gradria~e, few of them ever get school jobs at blue chip companies-

20

or, for that matter, any jobs at all through Corinthian. Instead, they often leave the

21

.students saddled with tens of thousands of dollars in personal debt. Based on its

22

false representations about the job placement, the California Attorney General is

. 23
24

::

4. . But this action concerns another exploitive corporate practice costly

25

to Corinthian's students and federal taxpayers. It arises from false claims;

26

certifications, contract proposals, costs reports, progress payments reports, and

27

other documents and false statements that Corinthian and its co-defendants made

'28
201094.1

..

.....

seeking to shut down Corinthian.

.

,:

-2~

COMPLAINT FOR FALSE CLAIMS

or caused to be made to the United States Department of Education pursuant to the

Higher Education Act ("HEA"), Title IV.

5.

Over the past few years, C01inthian received several billion dollars

from the federal government. Its revenues totaled $511 million in 2003,$796

million in 2004, and $964 million in 2005. Of these amounts- Corinthian~s life

blood -

6'.

approximately 80% came from HEA, Title IV funds.

To increase its enrollment and obtain federal funds through their

student loans, Corinthian aggressively recruits thousands of students each year

through advertising campaigns targeted at poor persons and recent immigrants. It

10

\'

then uses trained recruiters to "close" or sign-up person~ responding to these

11 . advertisements.

7.

12

Recruiting alone is not illegal. But the Department of Education

13

strictly prohibits schools receiving Title IV, HEA funds from paying recruiters

14

bonuses based on the nu~ber of students- known internally at Corinthian as

15

leads- they sign up. See, e.g., United States.ex rel. Hendow and Albertson v.

16

University ofPhoenix, 461 F.3d 1166 (9th.C:ir. 2006); United States ex rel. Main v.

17

Oakland City University, 426 F.3d 914 (7th Cir. 2005), cert. denied,- U.S. -

18

(2006). Prior to its imposing this clear and absolute bar on awarding any incentive

19 compensation;> Congress found that this prohibition was a major means of

20

preventing unscrupulous and fumdulent recruiting tactics .. Congress found that

.21

such tactics victimize some of society's most vulnerable persons, deny many

-22

students access to limited financial-aid fi.uids, and drain public taxpayer coffers
8.

23

Despite this ban, as a matter of corporate practice, Corinthian schools

-24

pay recruiters bonuses amounting to 2.5% to 10% of their base pay based on the

25

number of students they recruit. ~~e Exhibit A, attached hereto (promotiona1

26

guidelines for recruiters as of July 2005). The bonuses kick in only if these

27

students remain in school for a short :period of time -long enough though for

28

Corinthian to receive their federally-funded financial aid. In the case of Pell

201094.1

-3COMPLAJNT FOR FALSE CLAIMS

-.
::,

.,

Grants and certain other fmancial aid, Corinthian would receive the benefit of a

full year's of aid even if the student drops out of school during that year. The.

student~

9.

however, would still be obliged to pay a full year's worth of aid.

Corinthian and its co-defendants are Hable to the United S~tes under

-5

the FCA because of the company's use_offalse statements to obt~ HEA, Title IV

loan funds. Specifically, in requesting and receiving approximately one-half-

billion dollars annually, Corinthian and its co-defendants falsely represented-that

Corinthian complied with HEA 's prohibitions against using incentive payments

for recruiters, which is a core prerequisite to receive any HEA, Title IV funds.

10

Had the defendants told the truth, Corinthian would never have received these

11 funds and/or would have had to return them to the United Sjates. Thus, Corinthian

12

and its co-defendants victimize both vulnerable students and federal taxpayers.
10.

13

Besides Corinthian, the plaintiffs/relatorshave sued its directors, and

.14

its outside auditors for their knowing participation or wiilful ignorance in

ts

facilitat~g its

submission of false claims to the United States. Congress made it

16

clear that outside auditors must play a key role as gatekeepers in policing HEA,

11

Title IV fraud.

THEPAR'fiES

18

11.

19

Relator Nyoka Lee is a resident of California; who ~orked for

.20

Biyman College for approximately six years on and off ove~ the past decade. Her

21

jobs included serving as a test proctor, admissions representative, senior

22

admissions representative, and master admissions representative at the school's

23

San Francisco campus from 1999 to 2003; the director of admissions at the

.24

. 25

school's Haywood, California campus from 2003-2004, and a master admissions

representative in the school's San Francisco cam,pus from 2004-2005.
12.

26

Relator Talala Mshuja is a resident of California, who worked as a

27

test proctor at Bryman Colleg~ betw~en 2000 ap.d 2005. He worked at both the

28

~an Jose and San Francisco campuses of these schools.

201094.1

-4 COMPLAINT FOR FALSE CLAlMS

:.
-~=

;{
,

. -:

..
13.

The United Sta~es, through the Department Of Education, an agency

of the Umted States of America, is responsible for regulation an<:{ administration of

the federal student financial assistance programs authorized by Title IV.

Corinthian executed Program Participation Agreements ("PPAs'') with the

Department of Education to become eligible and remain eligible in HEA

programs.

14.

Defendant Corinthian Colleges is incorporated in Delaware,

maintains its headquarters in Santa Ana, California, and regularly conducts

business throughout the United States, including the Central District of California.

10

It is one of the largest for-profit, post-secondary education companies in the

11

United States, with more than 66,000 students in 97 "colleges" in 25 states. It

12

maintains 16 "colleges" in California. One is located in Los Angeles, and several

13

are located within the Central District of California.

15.

14

Defendants David Moore, Jack D. Massimino, Paul St. Pierre, Alice

15

T. Kane, Linda A. Skladany, Hank Adler, and Terry 0. Hartshorn are directors of

16

Corinthian Colleges. Jack Massimino also is the company's chief executive

17

officer. The board of directors monitored and approved of the illegal recruiter

18

compensation practices as the meansto obtain the targeted enrollments levels for

19

the respective Corinthian campuses.

16. Defendant Ernst & Young is a firm of certified public accountants,

20
21

that regularly conducts business throughout the United States, includingthe

22

Central District of California. Ernst & Young performed Corinthian's compliance

23

audits, which were submitted to the United States Department of Education

24

pursuant to the statutory requirements for participation in Title IV, HEA Programs.
17.

25

26

Relators are unaware of the true names and capacities of the

defendants sued as Does 1-500 inclusive.

27

28
201094.)

..

- 5COMPLAlNT FOR FAL SE CLAIMS

JURISDICTION AND VENUE

'1

18.

This Court has subject matter jurisdiction pursuant to 3!" U.S.C.

1331 and 31 U.S.C. 3732, which confer jurisdiction on this Court for actions

brought under 31 U.S.C. 3729 and 3730.

19.

This Court has jurisdiction over the defend!lJltS pursuant to 31 U.S.C.

6 3732(a), which authorizes nation-wide service of process. Moreover, defendants

7

transact .business in this district.

20.

8
9

10

'

Venue is proper in U?is district putsuant to 31 U.S.C. 3732(a)

because the Defendants can be found in, reside in, and/or transact business in the
Central District of California.

,,...
..

SUBSTANTIVE ALLEGATIONS

11

21.

12

The HEA prohibits institutions that pay "any commission, bonus, or

13

other incentivepayment ...H to recruiters from receiving federal funds from any

14

HEA program. Congress enact~d this ban following hearings that vocational

15

schools were enrollipg unqualified students merely to obtain federal student-aid

. 16

17

22.

The federal government ~-pends approximately $6 billion annually to

18

assist students seeking an educ~tion at colleges and vocational schools.

19

Corinthian alone receives roughly 10% of these federal funds. Such funds, in the

20

form of student loans, do not go directly to the students. Instead, the federal

21

government remits the funds to the college or vocational school in trust for the

22

student.
23.

23 .

As long as a student ~atricu]ates, the college or vocational school

24

credits that student's tuition with the federal funds. If the student drops out of

25

school during.the school year? the school in many cases gets to retain the federal

26

funds. But, the student is responsible to pay back the loan even if he or she fails to

27

complete his or her program of studies -

28

For many of the Title IV, HEA loan programs, as long as the studentremains at
201094.1

.,.
'

funds.

and many Corinthian students don't.

- 6COMPLAINT FOR FALSE CLAlMS

Corinthian for a brief period of time1 the school retains the federal funds,. and the

former student must repay the loans.

24.

Relators, who have direct and.independent knowledge of the

information upon which this action is based, sue on behalf of the United States to

recover all federal educational grants and all federally insured educational loans,

including but not limited to defaulted loans, made to students who attended

Corinthian schools.
25.

8
9

For a period of year~, but particularly in 2005 and subsequently,

Corinthian made false certifications of compliance, both express and implied, to

10

the United States that it did npt pay commissions and other incentive

11

compe:Q.sation to its recruiters. These representations were patently false, and

12

violated PPAs Corinthian signed as well as federal statutes and regulations

13

governing eligibility to receive Title IV, HEA Program benefits. Corinthian made

14

these false certifications, false statements and fraudulent inducements to obtain

15

Title.IV, HEA rrogram grants and guaranteed loansfrom the United States. Its

16

illegal conduct is ongoing.

26.

17

The Higher Education Act of 1965, '".('itle IV, Part G, 487, as

18

amended, prohibits an institution that pays incentive compensation to admissions

19

and recruitment representative~ from participating in Title IV, HEA Programs. An

20 institution must enter into a PPA with the Department of Education to participate
21

in the Title IV, HEA Programs:

22

The agreement shall condition the initial and continuing eligibility of

23

an institution to participate in a program upon compliance with the

24

following:

25

26

* * *

27

28
20109H

-7COMPLAINT FOR FALSE CLAIMS

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The institution will not provide any commissio~, bonus, <;>r other

incentive payment based directly or indirectly on success in securing

enro1lments or financial aid to any persons or entities engaged in any

student recruiting or admission activities or in making decisions

regarding the award of student financial assistance, except that this

paragraph shall not apply to the recruitment of foreign students

residing in foreign countries who are not eligible to receive Federal

student assistance.

12
13

14

15
16

20 U.S.C. 1094(2).

. 10.
11

.:..

27.

ln 1992, Congress banned incentive recruiter compensation to

recipients of Title IV, HEA after fmding that recruiters paid commissions to
generate enrollments at proprietary schools and exploited students looking for
impartial advice about their education. Congress found that students enrolling in
these schools were exploited while the United States tre_asury WaS drained of
limited funds set aside to provide low and moderate income students with an
opportunity to o~tain an education.

17

28.

18
19

20

To eliminate the conflict ofinte~est and protect students Congress

7

outlawed incentive compensation for recruiters based on the hearings that

catalogued a series ofabu~es summarized below:

21

[T]he Permanent Subcommittee on Investigations held two days of

22

hearings on problems in the Title IV guaranteed student loan

23

program. Those hearings uncovered an alarming pattern of waste,

24

fraud and abuse in the program, particularly in regard to those loans

25

given to .students enrolled in trade and proprietary schools. At those

26

hearings, the General Accounting Office reported that their review of

27

the 1987 data showed that, although proprietary school students

28

accounted for only 22 percent of the outstanding loans in the Title IV

201094.1

8-

COMPLAINT FOR FALSE CLAIMS

,\

.I

program, they produced.44 percent of all ~efaults. Of perhaps even

greater significance, we also heard testimony that vividly

demonstrated that the students for whom the loan program had been

developed were being victimized themselves by unscrupulous school

own~rs. Tens of thousands of such students failed to receive the

promised training and skills from those schools and, accordingly,

found themselves saddled with debt they had no way of repaying.

'

Abuses In Federal Student Aid Programs: Hearing Before the Permanent

Committee On Investigations ofthe Senate Committee On Governmental Affairs,

10

S. Hearing. 101-659, Pt. 2 (Statement of Sam Nunn, Chairman).

11
12
13

14

29.

As a result of the legislation passed in 1992, executing PPAs became

a mandatory, statutory requirement for "initial and conti.nued participation in any

Title IV, HEA Program." The agreements contain ~he statutory prohibition against
paying incentive compensation to recruiters.

15

.,

30.

16

17
18
19

An educational institution is not eligible to receive Title IV funds

without executing the PPA agreements and annual certifications, and institutions
violating the incentive pay ban must return Title IV funds with inter~ts and cost
to the Department of Education.
31.

20

Despite the ban on incentive recruiter compensation, Corinthian pays

21

its recruiters incentive compensation. As a matter of corporate practice since at

22

least July 2005, recruiters have been required to ~eet a certain enrollment quota,

23

depending on their salary grade and title. Those recruiters that exceed their quotas

24

receive raises of 2.5% to 10% of their base salary, every six months, depending on

25

the number of new recruits they sign up. The bonus criteria are set forth in a

26

matrix designed by Corinthian. Employees failing to meet their quotas are

27

disciplined, demoted, or terminated. See Exhibit A.

28
201094.1

-9COMPLAINT FOR FALSE CLAIMS

....:__

..

--

..

. .' : ..

...

.. .. .,:.:. ;
. .

:~:-~~ ~

32.

The company monitors these quotas, euphemistically called "goals,"

at daily meetings, weekly meetings, and _monthly meetings. In order for a recruiter

to meet his or her quota or get a bonus the student must remain in school just long

enough for ~e school to collect his or her financial aid -

$1 0,000 per student. (Regardless of how long they stay in school, the students'

debt cannot be extinguished and the schools impose extreme obstacles to students

seeking refunds).

g.
9

33.

on average about

A second requirement to both obtain and maintain eligibility to

receivefunds from Title IV, lfEA Programs is demonstrating through an annual

10

audited financial statement financial responsibility to meet certain potential debts.

11

An important purpose of this audit is for the entity receiving federal funds to

12

demonstrate it is fiscally stable.

34.

14
15

16
17

18
19

A third requirement to obtain and maintain eligibility is the annual

submission of a separate annual compliance or "attestation" audit report to the

Department of Education.. This "attestation" audit includes a letter from the
company's m~agement asserting that the institution is in compliance with the
laws and regulations applicable to Title IV, HEA Programs. An critical purpose of
this audit is for the entity receiving federal funds to demonstrate that it is
complying with federal law, particularly the prohibition against paying recruiters.

20

35.

21
22
. 23

24
25

26
27
28

The 'institution must represent that it has "not paid to any persons or

entities any commission, bonus, or other incentive payment based directly or

indirectly on success in securing enrollments, financial aid to students, or student
retention. Moreov~r, the auditor and the institution must agree that the auditor's
attestation report will be submitted to, and relied upon by, the Department.of
Education. Their engagement letter must include a statement that both parties
.

understand that the Department of Education intends to use t.he report "to help

carry out its oversight responsibilities of tbe Title IV programs."

201094.1

- 10- .
COMPLAINT FOR FALSE CLAIMS

..
'

..

'\
. :... .j

16.

'~')

..

According to Congress, outside auditors, like Ernst & Young, are a

.

critical line of defense in protecting against fraud, and by law, certify that their

3 work will be relied upon by the Department of Education, which does not have the
4

resources alone to regulate the vast for-profit education section. For this reason,

-.....
.

.:

5.

the outside auditors are required by law to perform two types of strictly monitored

audits for for-profit educational companies. First, they must perform annual audits

7 of the financial condition of the for-profit company. Second, they must perform a
8

very careful compliance audit, designed to ensure the Department of Education

that the for-profit educational company does not give any incentive compensation

10

to its recruiters in any form, including bonuses.

11

37.

Ernst 8i Young's engagement letters with Corinthian contained its

12

representation that the report on Corinthian's management's assertions of

13

compliance with specified laws and reglilations applicable to the Title IV, HEA

. 14

Programs, together with Ernst & Young's opinion on the financial statements,

15

would be used to establish and maintain Corinthian's eligibility to participate in

16

the Title IV, HEA, i.e., to get Corinthian's claims approved and paid by the

l7

Department of Education. Without this representation; upon which the

18

Department ofEducation relied to ensure that Ernst & Young's financial and

19 compliance audits were complete, addressing all red flag issues, Corinthian could
20
21

not receive even a dime of Title IV, HEA :fu.nds- much less the billions of
dollars it has received.

22

23
24

38.

Title IV> HEA Programs from which Corinthian receives hundreds

of millions of dollars each year include: the Pell Grant Program; the Federal
.

Supplemental' Educational Opportunity Program; the Federal Perkins Loan

25

Program; and the Federal Education Loan Program.

26

39.

27

28

Upon entering the PPA with the United States (and certifying

compliance with the terms of the PPA annually), Corinthian is eligible to request
201094.1

-11 COMPLAINT FOR FALSE CLAIMS

..

~.

..

..

'\

, ;

Title IV funds from the Department of education for Pell Grant Funds or for other

third-party lenders for government-insured loans.

4
5

40.

HEA Program funds from tlie Department of Education through the various loan
programs.

6
7

8
9

10

Corinthian submitted false claims for payment and obtained Title IV,

41.

For Pell Grants, Corinthian submits a request for funds directly to the

Department of Education based on the total nmpber of students eligible for the

..

..

grants and the total grant amount. The funds are then electronic'ally transferred to
Corinthian to be disbursed for financial aid. Thestudents do not request or
directly receive cimy of these grant funds.

11

42.

12
13

14
15
16

because it knew it was not eligible to receive such funds based on its re~iting
compensation practices, including awarding .bonuses based on the number of
students a recruiter signs up, and had made false statements and submitted false

certifications in its PPAs and other representations relating to the United States.
43.

17

..

Corinthian requests for Pell Grant funds amounted to false claims

For government-insured sn;tdent 1o~s, including those made under

.18

the Federal Family Education Loan Pr~gram, Corinthian sub~ts a request for

19

funds directly to a private lender. The Corinthian .request for government-insured

20

loan fundsis prepared by Corinthian, and includes a requires representations that

21

the student (and school) are eligible to receive Title IV loans. The same is true for

"'- '

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22 . loans disbursed under the Federal Direct Student Loan Program, the Federal

23 Perkins Loan Program, and the Federal Supplemental Educational Oppo~nity

24 Grant programs, which require the same certifications and under which the
25

Department of Education distributes student financial rud from funds appropriated

26

by Congress.

27

28
201094.1

- 12COMPLAINT FOR FALSE CLA1MS

..

44.

As did Corinthian, Ernst & Young also falsely certified that

Corinthian was in compliance with the recruiter compensation-prohibitions. In

particularly, Ernst & Young failed to perform the legally required evaluation to .

determine if Corinthian's recruiter compensation practices were legal.

45.

..,

Ernst & Young knew that Corinthian derived almost all its revenue
.

from IlEA funds, and that Corinthian spent close to one-fourth of its budget on

recruiters' compensation and advertising.

8
9
10
11

46.

Ernst & Young simply rubber-stamped the information provided to it.

by Corinthian. It issued its compliance audits and financial statement audit

_opinions knowing them to be false and/or in reckless disregard of the truth or
falsity of the information proviqed to the United States

12

47.

l3
~4

15
16

17
18

19
'20
21

Corinthian owed a massive liability to the United States as the result

of the company's illegal recruiter compensation practices. Corinthian's financial

statements were mis-stated and were false because they failed to.disclose that the
company owed a massive liability to the United States as theresult of Corinthian's
illegal recruiter compensation practices. Under PronouncementN umber 5 of the
FinanGial Accounting Standards Board ("FASB 5 "), Ernst & Young was obligated
to disclose all contingent obligations on the financial statements. Yet, it failed to
do so. Nor did it mention any qualifications on Corinthian's financial statements,
which it was required to do under applicable accounting and auditing standards.
48.

22

Ernst & Young made false certifications of compliance respecting

23

Corinthian's financial statements and compliance obligations, knowing the same

24

were going to be submitted to the Deptment of Education to ?btain funds from

25

the United .States treasury.

49.

26

Ernst & Young also fraudulently caused the United States to pay Title

27

IV, HEA Program funds to Corinthian by such false and fraudulent compliance

28

audit and financial statement audit opinions.

201094.1

- 13 - .
COMPLAINT FOR FALSE CLAIMS

..

. \

'

COUNT ONE

(False Claims Act, 31. U.S.C. 3729(a)(l)

(Against AJJ Defendants)

4
5

50.

The Relators reallege and incorporate by reference all paragraphs set

forth herein.

51. By virtue of the acts described above, defendants knowingly or acting

in deliberate ignorance or reckless disr~gard presented or caused to be presented to

the United States false or fraudulent claims for payment or approval in violation of

10

:-

theFCA.

..::

..

57.

By virtue of the acts de~cribed .above; defendants conspired to

defraud the United States by getting a (alse or fraudulent claim alJowed or paid in

violation of the FCA.

23

24

above, were misrepresented and concealed material facts.

64.

25
26

misrepr~ented

65.

21
28

Defendants knowingly and/or in reckless disregard of the truth

and concealed material facts.

Defendants made these misrepresentations of material fact or failed to

disclose material facts inten_d ing thai the United States would rely on their
201094.]

- 15COMPLAINT FOR FALSE CLAIMS

.
.

. l
2

~....

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accuracy in evaluating Defendants' contract proposal, in granting the contract, and

in paying their claims in connection with the contract award.
66.

The United States justifiably relied on Defendants' false and

misleading representations in eva1uating Defendant's contract applications, in

granting their contract award, and in paying their claims in connection with this

contract.

67.

Defendants defrauded the United States.

'8

68.

'

Defendants' conduct has caused the United States to suffer damages.

10

COUNT SIX

11

(Unjust Enrichment)

12

(Against All Defendants)

13
14

'
.;

69.

The Relators reallege and incorporate by reference all paragraphs set

forth herein.

15

70.

16
17

States.
7L

18

l9

Defendants have been.unjustly enriched at the expense of the United

The United States is entitled to damages as a result of this unjust

enrichment. .

20

COUNT SEVEN

21

(Payment Under Mistake of Fact)

22

(Against All Defendants)

23

72.

24
25

The Relators reallege and incorporate by reference all paragraphs set

forth here~n.

73.

26

The United States paid or approved the claims submitted by

27

defendants under the erroneous belief that the statements Defendants made were

28

truthfuL
2(}1()94.J

- 16COMPLAINT fOR fALSE CLAIMS

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74.

75.

The United States' erroneous beliefs were ~aterial to the amount of

Because of these mistakes of fact, Defendants received money to

which they were not entitled.

i~

money the:United States paid.

3
4

. ;;

76.

By reason of the overpayments described above, the United States is

entitled to damages in the amount of overpayment.

WHEREFORE, RELATORS DEMAND H)DGEMENT AGAINST

8
9

DEFENDANTS AS FOLLOWS:

A.

10

On Counts One, Two, Three, and Four judgment against Defendants

11

for treble the damages sustained by the United States, plus civil monetary

12

penalties for false claims and statements as allowable by law;

B.

13
14

On Counts Five, Six and Seven judgment against Defendants for the

damages sustained by the United States;

..

15

C.

The Relators r~spectfully request leave of the Court to amend the

16

Complaint when the amount of damages has been fullyascertained or to amend

17

the Complaint to conform to proof at or prior to trial;

18

.. 19
20
21

D.

For costs, fees, and .other relief as may be must and proper;

E.

For a ten percent (10%) ~~charge in the amount of the debt owed

pursuant to 28 U.S.C. 3011.

22

2:3
24
25

26
27

28
201094.1

- 17COMPLAINT FOR FALSE CLAlM$

.~"',.,

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I

DEMAND FOR A JURY TRIAL

Pursuant to Rule 38 ofFederal Rules of Civil Procedure and pursuant to the

local rules of Court, the Relator demands a jury trial as to a11 issues so triable.

4
5
6

Dated:

March~ 200;

RespectfuJly submitted by:

8
9
10
11

12

LA';fFFICES OF SC9f5I)D. LEVY

J~6e/

13
14

SCOTT D. LEVY

15

16
17

lS
19

20
21
22
. 23

:-;

24

25

26
. 27
28
201094.1

- 18COMPLAINT FOR FALSE CLAIMS

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EXHIBIT A

Cor:inthian Schools an;~ Rh:odes CO.Ileges

AduJtAdmissions Rejn:eseniative .
. E:ompensati~n Pro'gram

Up(lated: 7/6105

Promotion Guidelines

'

(Attachment A)

Promotion from
Associate Campus AdmisSions ~ep,tesen~tive
.
.
to

Campus Admlss.i ons Representative.

will

A.. EllgibDfty. An.AsSod~t~ ca-.:npus Admissions Representative..

~e eligible for promotion to
Campus Admissioi}S RePr.~~R~tlve provided that tlie following performa nce cnteria are

achieved:

1. Complete at least 6 months employment in the positron of Associate campus

Representative.

2. Successfufty achieve airot tb~!'-Minlmufn' Standards of Performance as an Associate

.campos. Adml.s~fo;ns R~resentative.

3. Achieve an overall performance rating of .a t least "Good" on the company Employee

:
Perfonnance.Rev!ew form.
. .
.
. ..
.
4. "f.he: Associate C~mpus Rep~esentatlve must have a minimum of 40 Starts whlchoccur
~ithin th'e R~pr~sef.l~tlv~':; slx-mc:mth rev\ew pet;o.d; .

.:

s.

s.

:Achieve:a minlmum 80% 3o-oay Sit Rate doling the Representative's six-month review
period. (I.e., 80% of the Starts remain In school for at least 3Q .days).
.

PrO.m~on.saiarvfn~r~as:e.

R~presentativ~~ ~Jil'be

Assodate campus Admissions

eligible
to r~ceive a:promb~orl scilary Increase that corresponC!s to' the greater of the following
condltioos:
'

1. A promoti'on salary increase percentage that corresponds to the actual number of starts
achieved within the participant's six-month review period, or

2. A promQtion salary Increase to the minimum of the salary range of the position to which
the participant Is beirig promoted.

Good Rating plus 50

Net Starts
Excellent Rating plus 50
Net Starts

Note: .
. For the purpose of this program, eligible employees and ~ependent:s who attend one of
QUr colleges and receive the company provided tuition discount will not be couoted in th~
}Jerform~nce statistics used to determine eligibility for promotion under this program.

Program Effective; July 1. 2005

Document Created: 'US/05; last Revised: 7/6105

-f"~~&~CcloQooMANWARopr
~~~ -""""""'CIQWnoo7~

1 of 10

'

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.,)

Cor_inthian Schools 'i'nd Rhodes Colleges

Adult A(i~i~l.ons Repr-esentative
Compensation
..
. PFO!fram

"'

Updated: 716105

. Promotion Guidelines

(Attachment A)
(continued)
Promotions and related salilrY lnci.e.~~~s. earned under this program will. be withheld f~
breaches of regulatory policy or company policy on the part of-the representative.
Breaches of .regulatory policy will also. lead to .further disdpllnary actio_n , up to and
iridudlng termination of employment. Breaches of company. policy, depending upon the
severity, may lead to further :discipHnary action; up to ai1d . i.ndt,Jding' ~en:nlna~an of
.. employment. Fa.lslfyil')g.information use~to.determine ~ligloUity for a promotion arid
. ,. related .salaJY. Increase under thls program would be cOnsidered a serious breach of
company policy. .

to

adjust 9s>als as it deems appropriate. The company

The company reserves the right
also reservesthe right to suspend, modify or terminate this prpgram at anytime. Nothing
in this dod.lment is to r;,e constru~ .to guarantee: contlnuatfoh of this ptogram. ln
addltio!l, nothing ;n this _program prevents a college from counseling or. placing a
repr'esentative on probation for pe.r fonnance defic~endes

.If:the pr.or:noted employee's o~erali performance falls below the performance criteria

whidi earned the promotio.n, the emplo,yee may be subject t~ tJis.c!plinary action as
~ppropriate or in rare cif'C\Jmstanc~ reasslgRme'nt may be con~ld.er.ed, .witl} required.
.I~V!!Is of apprQval. : However,: prfor::~o the occu~nce ofany oHflese actions, the
employee will be formally counseled and given an appropriate period. of time .to correct
the performance deficiencies.

This is a non--e xempt positlo~- and

the incumbents are to be p~.id .for. all:hours-sCheduled

and approved, or allowed, to work. Therefore, it is lmperab'Ytfthat thelr ~ork. hQurs be
:carefully. sche<1uled, a~f;fov.ed rn advance and dosely monitored by the Director of
Admis$Jons.

..
. , ,
.

:_

,'

P(Ogratn Effective: July 1. 2905

. Docurnerrt Created: 7JSJOS; Last Revlsed: 716105

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Corinttaian Schools and Rh-~cies c~)Ueges

AdultAdmU>sionsRepre5ec:atat.i ve
(orrip~nsation

Updated: 7/6105

Pr.ogtam

Promotion Guidelines

(Attachment B)

Promotion from
~~mp.us Admrssioos Represe~tatht;e

to.

., .

Senipr Campus Admissions

R~ptes.entiJtive .
.
.
.
.

A. Eligibility. A Campus.Adm~sions Representative will be.cligih{e.for promotion to Senior

Campus Admfssighs Representa.tive provldei:i that the following -perfonnance. criteria are
achieved:

..
,"Z

1. Employed in the campus Admissions Representative ~assification for atleaSt 6 months.

. ...
.:

2. SbcceSsful.ly achle~e .all -of til~ Minirilom:Stindards of P.erfQrmance as a Campus

'.:.

Admis51ons.Representative. .

3. Actifeve
ove~;j pertori:~ncerating of.at'lea'St:"'Good''on the
Perforn'l-ance Review Fornr.

an

4. The cam~s.Represent<!ti~~-must

~mpany Employee

hav~ a minimum ~f 58 .Starts whiCh occur within the

- Repres~ntativ~'fsl~-mpnth,~~view
: .. .
. . . .

penM.

.
.
5. Ac;h~v~ ~ intnilllum so~/o 3.0-:Day Sit Rate during th'e~Ref)re$~ntatlve'~~x-month review
period: (i.e., BOo/o of the Starts remain In school for at le~st 30 days).

.
.
s : Promotion ~lary inc!=~~ _CatJlpus Adml~~h?hS Representatives will b~ eligible to receive
a.pr.omotiOn safary. incre~se that corresponets
t:O the grea~er
. . :.
.
. of.the following conditions:

1. A promotion salary lncre~se percentage th'at corresponds tothe actual number of starts
achieved within the partldpan~s six~month review peri~, or
2. A promotion salary Increase to the minimum of the salary range of the position to which
the participant is being promoted.

Note:
For the J>l!rpose of this program, eligible employees and dependents who attend one of
our.ci>lleges and receive th~ company provided tuition di?O>unt will not' be counted in the
performance statistics used to determine eligibUity far promotion under thfs program. .

Program Effective: July 1, 2005

Document Cr~ated:. 715/05; last Revised: 7/6105

3 of. lO

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..

Corinthian. Schools ~nd Rh~es Colleges

Adult Admis5h~f1S. Representative .
.Con,pensati.on
:P..r~gi:am
,,...
.
.
~romotiqn.Guldelinet

Updated: 716/05

(Attad)ment.B)
(continued}
Promotions and related salary IncreaseS .earned under this program will be withheld for
breaches .of regulato,.Y f'ollcy or com(>any polrcy on the part of the representative.
Breachesof regulatory policy w1R also. lead to further dlsdplinary action, up to and
including terminatiorf of emplovi1tent. Breaches of company policyI depending ~pon .the
severity, may lead to further ~Jsciplfnary action, up to and i(lchl~ing terminatl9fl of
employment. FalsifYing h1formatfon used to determfrie ellglbllity for a. proinotiQI'J afl4
related salary increase under thls program would be considered -a serious breach of
company policy.

..
.'
The CQmpany reserves the rlgtit to adjustgQaiS as it deems appropriate. : Ttl.e (;Q.mpany

also reserves the right~ S':fspend, !"l~lty.ortermlnate tbJs-pro9ra.m .at,a~~me. Nothing.

i n this documen~ Js fo be construed to guarantee contin~tion of'thts program. In
addition, n9thlng in thfs program prevents a college from counseling or pladng a

repre.s entative on probation for pe!:formance defldehcles.

If the, promoted .el'nployee's overall perfon:nance falls belOw the pe,rformance criteria
which earned the prorn,otion, . t~ employee may b~subj.e(:t to dls~pllnary (:!ctl~n as
apprriat~. or.in tareCircumstances reass.igl)ment;n;ay be consider-ed, .with .required
levels of approval. However, prtor to theoccurrence o~ an .of. t,tlese ,actions-,.the, .
.employee will be formally CO\.Inseled and giv.en an C{ppropriate p~~Jod oftime.to correct.
the performance detlefende5. ' .

.
.
This Is a non-e>.cempt position and the.lfl.c umbents-are t9 be pa'ict foi'all,'.ho~rs schedt~le$1
and appr.ov.edi or allowed, to work . Therefore; It is .imperative tlif'lt their work hours b~
carefutfy. scheduled, approved fn advance and closely monitored . by the. Director of
Admissions.

._.;

Program Elfective: July 1. 2005

.
Oo<:umef\t Created: 715105; Last Revised: 716/0S

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l'!w~liloloo6oi!IJ

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CoriDt~tan SchQols and' ~.hodes Cd.lleg'es

Updoled: 716105

A4~1V~dmissions Re~res~.ntative

.C ompensation P~ram
Promotion Guldennes

(Attachment C)

Promotion from .
~enl.or OlmP.us A_
d JnisSions Rep-resentative
to

Master (:am pus Admissions R~p~tmtative

c~mpu~ Adm~lons Repre.sentativ~ .wlli"be

t~

A "Eilgibillty . A Senior
:eilgible fur .pr.omotien
Master campus AdmissionS ~epresentative provided that the foii9Wing performance criteria
are achieved:

-.''

-~

1. Employed i~ the Senior Campus Admissions Representat1ve.classlij~tlon forat least 6

months.

..

. .

.2. SuttesSfully achjeve ~ll oHtie..MinimumSta.haardS of Perfori"i-ia.nce as ~- Senior campus

Admissions Represen~tive, ~

.
. ..
. .

3. Achieve an overall performance rating of at

Performance Revi.e w .fo~. ..

l~ast

senl~r Ca~pus R~pr~~~~Uve~

"Good" on.tt)e company Employee

minthi~~ o{ ~o s~rt:S. ~hich occur within

4. The
have:a
the RepresentatfVe~s
sh,-tjldntfnevJe.w
period. .
.
..

: . .. .

5. Achieve a minimum So"o/o-3-0~Day:Sit ~te during the.R~presentattve's sl~-month review

period. (i.e., 80% of the Starts re.main in school for at-leaSt 30. d~ys)
. .

B. Pt:oinotion salary ln~rea..se, S~~lor Q)mPus A'dinlsSiblis R~~sen~pv.e.s)vill be..ellg.lble to

receive a -promotion salary.increase that con:espohds to the greater 6f 'the following
.
conditions:

1. A promotion salary increase percentage that corresponds to the actual number of starts
achieved withlo the participant's six-month r_e~!ew period, or
2. A promotion salary increase to the mtnlmum of the salary range of the position to which
~e partidpant is being promot-ed. .

Note..:
For the purpose of this program, eligible employees and dependents whO attend one of
our colleges and rec::eive the company provided tuition discount will not be counted in the
performance statisticS used to determine eligibility for promotion under this program.

Program Effective: July 1. 2005

Doalment Created: 715/05; last Rev~ed: 716105
~ ,~-~-Cologoo--Rop<

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Corinthi_a n__ $(:hoots and Rhod"~ Colleges

Adul~ ,~mj~~ons -Representativ~

Updated: 716105

. Comp~sation Pr'Q9'iS"m
Promotion ~uidelln.es

(Attachment C)
. ( cont~nu~d)
Promotions an.d rela~ed ~I<Jf'Y iocreas~s earned ur1der tfils prog~am will be withh!!fd for
.breaches of regulat-ory Pofic:Y
company policy on the part of the repres_e ntatlve.
Breaches of regulatory poljcy .will also lead to fu~l" dlsdplinary action, up to and
.
lnduding termlnatfon of employment. Breaches of co!llpany policy, ':'~ending u_pon the
severity, may lead to further diS<:iplinary action; :upto and induding:termlnatlon of

:employment. Falsifying information used to determine etJgibllltv tor a pr~motian and

related salary increase under this program would be considered a serious breach of
company policy!

or

The companyres~rves the rtght to adjust goais as it deems appropriate. The company
also :reserves the rtgf1t to- suspend, mOdify or terminate thfs _program at anytime. Nothing
In tHis d~cumeilt Is ~o be construed:to .guarantee con~nua"tion o_f this prog~m~ Inadd~on, nothing iri this program prevents a college from counseling or placing a
represen~ative on probation for performance .deflcienti_
es.

If-thepromot~d-~m~royee'~ overall ~erfo~ance fall~ ~loW the perforinanc~_crit~rta

which earned the promotion, the ~mployee may be subject ~0 disdpliflary actlQA-as .
appropriate or l!J .rare. circumstances. reassigrlhient rna'y be_c:on~(je,red; wil;tl req.ulred .
~ iey~1s.-of.-approval. ' However, prior to the :OC\JJTEm~e of:any of
actions~ the
employee will be fonnally eounseled and given an appropriate perf 9f time to correct
the penonnance deflc_i.end~.

'
.

these

This Is a non-exE!mpt position. and the _Incumbents are to be p~ld .f.~r..all-ttqurs..sche.duled

and approved, or allowed, to work~ Therefore, it is .Imperative that ~~lr -work -hour-S.-be
a!~rolly scheduft!(i; a!)proved In advance and closely m(mitored 'by theDirectOr of

Admissions."

;:

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ProgramElfective: Jllfy 1,-2005

Document e~ 7/5105; last Revised: 716105

U*fo""'r.~&-ColitooA<i.lt...,.Roiw

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Corin~J~-~ $~ools andRtTode5 C~lleg~s

Updated: 716/05

Adult.:Ach:nl~ions. Rep'r e$entative

Compe_
Prograril
. .n sation.
.
.
Promotion Gui.dellnes
(Attachmen~

...

.Promotion from
Master Campus Achnfssions Representative

to

..
:.'
~ecutive ca.mpus .Admissions R~pfn~tive

..

D)

A; Eligibility. 1t. f'1astr campus Admissions Repr-esentatlve-wm be eligible for prom<i.tio'n to Exec;utlve Campu!i Admissions Representative provided that th-e tbllowing perfor~(ice .
criteria
achieved:
.
.
..

are

1. Employed in the Master campus Admissions Representativ.e ~lassificatlon for at,ieast 6

months.

..

2;-- SuccessfullyaP'\i~Ei~all o(th~-Mi~imum Standards of Pertormance as~

A~ missions Repre~~tative.
.

Maste,:_~mpus
_.

3. Achieve an overall performance rating of at least "Good" on the company Employ~e

Pertorm~nce Review Form.
.
.

4.

ttre Maste_r'Rep~en.tativ.e
have a minimum .of-100 st:a~:wtifc~.~r witf.lln_the
-'Represe~~ti!e'$"s!x-morit~ review: J?eriod.
., ._

m.ust

5. -Achieve a mlnimurt;~ BOo/o 30- bay Sit Rate during the-Representative's ~b(:..rrionth -revfew
perio4. (I.e., 80% 'of the Starts remain in school for at least 30: days).

s-. -p~btion salary. fn~a~~~ :Master Campus.- Ad~lsslons Representati-ves wlif.b'e ellgible to
recelye a promotion salary Increase that corresponds to the-gre'ater-O(the .foito.wlng.
conditions:

_;

1. A promo~on Salary ln~rease percentage that corresponds to the-actuaJ number of starts

achieved wlthlnthe partldpant's six-month review period, or .

2. A promotion salary increase to the minimum of the salary range of the position to whkh
the participant is belng promoted.

Note:
For the purpose of this program, eflglble employees and dependents who attend one.of
our ~lieges and-receive the company provided tuition discount ~ill not be counted in the
performance statistics used to determine eligibility for pr~motlon under this program.

Piog;pm'Effediv~: July 1, 2005

Docum.ent Greafe<f:- 7/5105; last Revised:. 'T/6/QS
uAS.-..Por ~ Sd>oolo al!hodot c:oliooo.wtA41>W ~~op
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.J

CC?.rin,~!dan SchqoJ~ an.d Rhod~s Colleges

Adui~ Ad.ml~sions- Rept".e:se~tative

Updaled; 716/05

c;o.mpensation:P-:ograrn
Promotion Guidelines

(Attachment D)
(continued)

Promotions and rela.~~~-~lary increases e<m:ied under this progFam will be withheld for .
breaches of regulatOry policy or company policy on the part of the representativ~.
Breaches of regui~\O~JY. ~licy will also iead to fur1her disdplinary aqton, up to and .
Jndudlng tenntnatian of employment. B~aches of company;policy, depending upon the
se~erity, may lead :~.o furth~ dlsdplinary action; uti to and Jndudlng t~mination of
emptoyment. Fa~f.ying_ irl{pnna!;ion used todetemilne eligibility tor ~ ptomotfon ~nd
related salary increase untfer'thls program would be considered a serious breach of
~ company policy.
.

>.

':~

the

The company iiiSetVes

right to adjust goals as it deems appropriate. The ~ompany
also resetV~ the right to suspend~ modify or terminate this program at anytime. Nothing

In ,n1~ doc;ument is to be: con~ed to.guarantee eontim.iatloh ":'b f this pr.ogra.m~ in

aCJdi!ftin, 'nothing in this program prevents a college from cou!TSelfng or plac.ing a
representative on probation_for performance deficlendes. .

If the 11romoted em~loyee's overall performance falls belo~ the perfonnance criteria
whlc;h earned the promotion, the employee may t?e subj~ to disciplinary action as
approprJate_or in rar:e circur:ns~nces reaS$1gnmeritmay be considete<f~ w~requj~ed
levels of'approval. However, prio-r to the otcurre.nceo f any of ttlese actions, .the
employee will be formally counseled and given an appropriate peri~. of time to correct
the
defidencies..

..
.
. performance.
...
This Js. a non-exempt posltfcm. and the Incumbents are tp be p<Jfc;l for aU hou~. ~~t:J!ed
. <!nd app~Ved, or allowed, to worJc. Therefore~ it I~ imp~ra'6ve 'that their work hQU~;b.e
. !<ca~'( schedul~, C!PPr~;~ed II) advance and closely monitored by the Director of, -; .
Admls.sions.

...
..~

.;

..

...

. ....~,

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Program EffeelivtY. July 1, 2005

.Document~( 7/5105; last Re vised: 7/6/05
II.IBoathy ,

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.Corfnthiart s chobls and~-Rhodes Coll~es ...

Adult -Admissions Representative
Compensation Program

Updated.: 716105

Promotion Gui'delines

(Attachment E)
. Pr:omotion from
Executfve .campus. Admissions Representative

to

Senior Executive Campus Admlssions Representative

A. Eliglbllity,;. An Exe~tive Carnpus Admissions kepr~sentatlve will be eligible for promotion .t o

Senior EXecutive Campus Admissions Representative provided that the following perfo~nce
. criteria
achieved:

-are

1. Employed in the Executive Campus Admissions Representative classification for at least 6

months.

.,

2. Successfully achle11e all of ,thE! Minimum Standards of Performance as an Executive

Campus. Admissions Represe':ltative.

3. Achieve an overall perfonnarice rating of at least "Good" on the company Employee

PerformanCe Review Form.

. ..

:..

4 . . TJie>BcecutiV~'Represe.ntative- most have .a minimum of 125 StartS whiCh occur within the
Repres~n~tive's six<:month revfew period.

5.

B.

Ac61~~~ a ~;~-i~~~ 86% 30-Day ~It ~ate. during the Representa~ive's six-mqnth review

period. (I.e., 80% of the Starts rem~ln in school for at least 30 days)
. :. -;
"'
P~otlon satary: incr~ase.; Execu'tive Campus Admissions Represe~~tatfves: wllt:be eligible
to' recelvea promotion salar-y lncreasethat corresponds to tfie g~ater of the following

conditions:

1. A promotion salary Increase percentage that corresponds to the actual number of starts
~chleved within the participant's six-month review period, or

2. A promotion salary increase ~o the minimum of the salary range of the position to which
.the.partfdpant is being promoted.

Note:
For the purpose of this pr(>grain, eligible employees and dependen~ who attend one of
our colteges and receive the company provided tuition discount will not be counted in the
perforrtlance statistics used to determine eligibility for promoti.on under this program.

Prog~ Elf~e: July~. 2.005

Document cteated: 715105; Last Revised: 7/6105

U,ISMOI'oy~-&-~MIII-Rifl'
~---"'"""""~7~Aoc

9 of 10

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Corinthian Sch.ools and :~hodes Colleges

Adult Admi~lops. Representative

Updated: i/6105

Con:-pensation P.rogram
Promotiao Guidelines

(Attachment E)
{continued)
.
.
Promotions and related salary increases earned under this program will bewithheld for
breaches of regula~ry pallcy or company ppllcy on the part of the representative.
Breaches of r:egulatory policy will alsa lead to furtt.ler disdpllnary action, up to and
including termlnation of employment. Breaches of compar)Y policy, depending tJpon the
severity, may. lead to furthe,r dis.ctplinary.actfon, up to and -including ~erminatlon of. . '
employment. Falsifying-information used to determine eligibility
a, promotion and
related salary Increase under this program would be consldered a serious breach of
company policy.

for

~.

The company reserves the right to.adjuSt goals as It deems appropriate; The company
also reserves the right to suspend, modify or terminate this program at anytime. Nothing
In ttlis document is to be construed tct guarantee continuation of thisprogram. In
add~lon, nothing in thfs program prevents a college from counseling or .Placing a
representative on probation for performance deficiendes.
If the promoted emplo.yee's ave.rall performance falls below the performance criteria
which earned the promotion, the emptoyee may be subject to disciplinary action as
approprt~te or In .r are drcu~ances reassignment may be ca~st~ered) with required
levels of approval. However, prior to the occurrence ot any -of th~ ~ctions, .the
employe~ will be formally counseled and given an appropriate period of time to -correct
the performance detlden~es~

Thi!! is a non-exempt position and the incumbents .are to be paid f~r all hours scheduled
and approved,.or,-aJiaw.ed,to work. Therefore,:it is:lmperatlve thafthelr ~ork hours be
carefully 6ch:eduled, approved Inadvance anddosely monitoredby the Director of
Admissions.

.. .
,

t.

ProgramEtfec41ie: July 1. 20()5

Oocornent ~ted: 715105;

last Revised: 716105

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Document 66
Filed 12/04/2009
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Case 2;07-cv-01984-PSG-MAN

Page 1 of 8

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA .
#35/36/37/JS-6

CIVIL MINUTES - GENERAL

CY 07-1984 PSG (JyiAN

December 4, 2009

United States of America ex rel. Nyoka Lee et al. v. Corinthian Colleges et al.

The Honorable Ph

S. Gutierrez, United States District Judge

Wendy K. Hernandez

Not Present

n/a

Deputy Clerk

Court Reporter

Tape No.

Attorneys Present for Plaintiff(s):

Attorneys Present for Defendant(s):

Not Present

Proceedings:

Not Present

(In Chambers) Order Granting Defendants' Motions to Dismiss [35, 36}

Pending before the Court are Defendants' motions to dismiss. The Court fmds the
matters appropriate for decision without orctl argument. See Fed. R. Civ. P. 78; L.R. 7-15. After
considering the moving and opposing papers, the Court GRANTS Defendants' motions.

I. .

Background

Defendant Corinthian Colleges, Inc. ("Corinthian Colleges") operates for-profit

vocational schools throughout the United Sfates. See Compl. ~ 2. Defendants Jack Massimino,
David Moore, Paul St. Pierre, Alice T. Kane, Linda A. Skladany,_Hank Adler, and Terry 0.
Hartshorn ("the Individual Defendants") (together with Corinthian Colleges, "Corinthian
Defend<mts") are members of Corinthian Colleges' board of directors. See id. ~ 15. Corinthian
Colleges alleg1y thrives on its recruiting practices, receiving billions of dollars in financial aid
under Title IV of the Higher Education Act ("REA"), 20 U.S.C. 1094(a)(2). See id. W 5, 6.
In an effort to increase enrollment- and thus federal funding under Title [V- Corinthian
Colleges allegedly offers its recruiters incentive payments and strict quotas for enrolling new
students. See id. fl-,) 31, 32. According to the Complaint, "recruiters that exceed their quotas
receive raises of2.5% to 10% of their base salary, every six months, depending on the number of
new recruits they sign up." !d. The payment schedule is presented in .the Admissions
Representative Compensation Program ("Compensation Program"), attached to the Complaint aS
Exhibit A. Additionally, newly recruited students are allegedly required to remain enrolled for a
fixed period in order to count toward the recruiter's quota. See id. ,132.
cv -90 (06/04)

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Case 2:07-cv-01984-PSG-MAN
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~

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Page 2 of 8

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA
. #35/36/37/JS-6

CIVIL MINUTES - GENERAL

CV 07-1984 PSG (MANx)
United States of America ex ret: Nyoka Lee et al. v. Corinthian

et al.

According to the Complaint, Corinthian Colleg~s' incentive payments violate the

eligibility requirements of the HEA, which prohibits "any commission, bonus, or other incentive
payment based directly or indirectly on success in securing enrollments or financial aid to any
persons or entities engaged in any student recruiting or admission activities or in making
decisions regarding the award of student fmancial assistance." 20 U.S.C. 1094(a)(20).
Corinthian Colleges was required to enter "into a program participation agreement ("PP A") with
the Department of Education in order to qualify for funding under HEA programs. See 20
U.S.C. 1094(a). Additionally, Corinthian Colleges was required to submit annual audit reports
and reports attesting to the institution's complia.J?.CC with the HEA. Defendant Ernst & Young
LLP ("Ernst & Young") allegedly assisted Corinthian Colleges in submitting its reports to the
Department of Education. See Compl. ,l33-34, 37. According to the Complaint, Corinthian
Colleges misrepresented its eligibility status to the Department of Education in its PPA and
periodic reports because its Compensation Program allegedly violated the HEA prohibition
against incentive paymentS. See id. ~~ 34-35. Because it allegedly submitted reports to the .
Department of Education on behalf of Corinthian Colleges, Ernst & Young also allegedly made
false statements to the federal government. See id. ,[ 3 7.
On March 26, 2007, Relators Nyol<a Lee and Talala Mshuja ("Relators") filed a qui tarn
action against Corinthian Defendants and Ernst & Young under seal. See 31 U.S.C. 3730(b)(2).
On Febru_a ry 25, 2009, the United States elected npt to intervene in the action, leaving only.
Relators to pursue their cla~ms. See Dkt. #21. Relators allege four causes of action under the
False Claims Act (''FCA"), 31 U.S.C. 3729(a)(l), (2), (3), (7) ("the FCA Claims"). See
Compl. fMf50-61. Additionally, Relators include causes ofactio.n for common law fraud, unjust
enrichment, and payment under mistake of fact (".the state law claims"). See id. ~~ 62-76.
II.

Legal Standard

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss a
cause of action if the plaintiff fails to state a claim upon which relief can be granted. In
evaluating the sufficiency of a complaint under Rule.l2(b)(6), courts must be mindful that the
Federal Rules of Civil Procedure require that the complaint merely contain "a short and plain
statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2).
Although detailed factual allegations a,re not required to survive a Rule 12(b)(6) motion to
dismiss, a complaint "that offers 'labels and conclusions' or formulaic recitation of the
elements of a cause of action will not do."' Ashcroft v. Iqbal, -U.S.-, 129 S. Ct. 1937, 1949,
173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct..
1955, 167 L. Ed. 2d 929 (2007)). Rather, the complaint must allege sufficient facts to support a

'a

CV-90 (06104)

CIVIL MINUTES- GENERAL

Page 2 of8

.... . .

Case 2:07-cv-01984-PSG-MAN

Document 66

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Filed 12/04/2009

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Page 3 of 8

0
UNITED STATES DISTRICT COURT
CENTRAL DISTRlCT OF CALIFORNIA
#35/36/3 7IJS-6

CIVIL MINUTES -GENERAL

ae~~.
77~,_c_v_o_7-_1_98_4_P_S_G_(_;_MA_N_x_;,)_ _ _ _ _ _ _ _~,,l?~J

United States of America ex rel.

December 4, 2009

Lee eta/. v. Corinthian Colleges et al.

plausible claim to relief. See id.

In deciding a Rule 12(b)(6) motion, the court must engage in a two-step analysis. See id.
at 1950. First, theCourt must accept as true all non-conclusory, factual allegations made in the
complaint. See Leatherman v. Tarrant County Narcotics Intelligence & Coordint(ltion Unit, 507
U.S. 163, 164, 113 S. Cl 1160, 122 L. Ed. 2d 517 (1993). Based upon these allegations, the
Court must draw all reasonable inferences in favor of the plaintiff. See Mohamed v. Jeppesen
Dataplan. Inc. ; 579 F.3d 943, 949 (9th Cir. 2009). Second, after accepting as true all nonconclusory allegations and drawing all reasonable inferences in favor ofthe plaintiff, the Court
must then determine whether the complaint alleges a plausible claim to relief. See Ashcroft, 129
S. Ct. at 1950.
Under Federal Rule of Civil Procedure 9(b), qui tam actions must be pled with
particularity because they involve allegations of fraud . .See Fed. R Civ. P. 9(b); Ely-Magee v.
California, 236 F.3d 1014, 1018 (9th Cir. 2001) ("The FCA is an anti-fraud statute .... As such,
we hold that complaint:;; brought under the FCA must fulfil!' the requirements of Rule 9(b).").
III.

Discussion

On August 3, 2009, Corinthian Defendants filed a Motion to Dismiss Pursuant to Federal

Rules of Civil Procedure 12(b)(6), 12(b)(l), and 9(b). On the same day; Ernst & Young filed a
separate Motion to Dismiss Pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(l), and
I2(b)(6). 1 The claims against Corinthian Colleges will be assessed, followed by the claims
against the Individual Defendants and Ernst & Young.
A.

Claims Against Corinthian Colleges

Relators' claims against Corinthian Colleges hinge upon the alleged false statements
made by Corinthian Colleges to the Department of Education. In particular, Relators claim that
Corinthian Colleges purported to compJy with the HEA in its PPA and numerous reports filed
with the Department ofEducatiop, while in fact it was aw~rding incentive payments to recruiters
in violation of the.statute. For the reasons that follow:, Relators' FCA and state law claims
against Corinthian Colleges fail.

Corinthian Defendants join in Ernst & Young's motion "to the extent the motion is not
specific to (Ernst & Young]." Corinthian Defendants' Mot., 7 ri.2.
CV-90 (06/04)

CIVIL J\IIINUTES- GENERAl.

Page 3 of 8

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. Case 2:07-cv-019.84-PSG-MAN

Document 66

Filed 12/04/2009

Page 4 of 8

0
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/J S.-6

CIVIL MINUTES- GENERAL

CV 07-1984 PSG (MANx)
United States of America ex rei. Nyoka Lee et al. v. Corinthian Colleges et al.
1.

The FCA Claims

In order to state a claimunder- the FCA, Relators must establish the following elements:
(1) a false statement or fraudulent conduct, (2) scienter, (3) materiality ofthe statement or
conduct, and (4) payments made by the government. See U.S. ex rel. Hendow v. Univ. of
Phoenix, 461 F.3d 1166, 1174 (9th Cir. 2006).
a.

False Statement

Relators' FCA Claims all require the making or use of a "false" statement. 2 However,
Relators fail to allege sufficient facts to infer that Corinthian Colleges made a fa1se statement to
the Department of Education. First, Corinthian Colleges' Compensation Program falls directly
within an HEA "safe harbor" concerning incentive payments. Thus, any representations made to
the Department of Education that its incentive program complies with the REA's prohibition on
incentive payments could not have been ''false." According to Department of Education
regulationspertaining to PPAs, a participating institution may compensate employees for
recruitment so long as adjustments are not made inore than twice per year .and based "solely" on
recruitment. See 34 C.F.R. 668.14(b)(22)(ii)(A) ("The payment of fixed compensation, such
as a fixed atmual salary or a fixed hourly wage, as long as that compensation _is not adjusted up
or down more than tWice during any twelve month period, and any adjustment is not based solely
on the number of students recruited, admitted, enrolled, or awarded financial aid." (emphasis
added)). Indeed, the Department of Education implemented this safe harbor in recognition that
"by the vetyjob description, a recruiter's job is to recruit." 67 Fed. Reg. 67056.
In this case, Relators claim that Corinthian Colleges awarded raises to recruiters if they
exceed their recruiting quotas, no more than twice per year. See Compl. ,[ 31. This practice falls
2

Relators' First Cause of Action under 31 U.S.C. 3729(a)(l) requires proofof a "false
or fraudulent claim for payment" made to the United States govenunent. 31 U.S.C. 3729(a)(l)
(eq1phasis added). Relators' Second Cause of Action under 31 U.S.C. 3729(a)(2) requires
proof that the defendant made or used "a false record or statement to get a false or fraudulent
claim paid or approved by the Government." 31 U.S.C. 3729(a)(2) (emphasis added).
Relators' Third Cause of Action under 31 U.S.C. 3729(a)(3) requires proof of a conspiracy to
defraud the government by "getting a false or fraudulent claim allowed or paid." 31 U.S.C.
3729(a)(3) (emphasis added). Finally, Relators' Fourth Cause of Action under 31 U.S.C.
3729(a)(7) requires proof of a "false record or statement" made to conceal or avoid an obligation
to pay money or property to the government. 31 U.S. C. 3729(a)(7) (emphasis added).

CV-90 (06/04)

CIVIL MINUTES - GENERAL

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Case 2:07-cv-01984-PSG-MAN

Document 66

Filed 12/04/2009

Page 5 of 8

0
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6 .
CIVIL 1\'IINUTES - GENERAL
CV 07-1984 PSG (MA.t~x)

December 4, 2009

United States of America ex rei. Nyoka Lee et al. v. Corinthian Colleges et al.
within the safe harbor because pay increases are made at most twice per year and Relators do not
allege that the increase is made solely on the basis of new enrollees. Indeed, Relators attached a
copy of the Compensation Program detailing the alleged i~centive payments, and this document
makes clear that increases in base salaries are not made solely upon the number of new enrollees,

Recruiters are eligible tmder the Compe~sation Program only if they recruit a minimum
of 40 new students in addition achieving minimum performance standards and an overall
performance rating of"Good" on the Employee Performance Review Form. See Compl., Ex. A.
Thus, salary increases are made on the basis of multiple crite~ia, with the number of new recruits
being one of the considerations. Furthermore, recruiters receive a greater increase if they receive
a higher performance ra~ing. For example, a recruiter who receives a "Good" rating plus 40 new
students will earn a 2.5% salary increase while a recruiter who receives an "Excellent" rating
plus 40 new students will cam a 5% salary increase. Thus, the Compensation Program does not
tie increases in salary solely to the number of students recruited and only adjusts salaries at most
twice per year. As such, the Compensation Program fallswithin the safe harbor.

to

Second, Relators argue that Corinthian Colleges teJ+flinates recruiters who fail to satisfy
their quotas for new stud~nts. See Campi. ,f 31. However, the termination of recruiters is not
. covered by the HEA prohibition on incentive payments. See U.S. ex rel. Bott v. Silicon Valley
Coll?ges, No. 06-15423, 2008 WL 59364, *1 (9th Cir. Jan. 4, 2008) ("The decision to ftre ail
employee is not covered by the Act because termination is not a prohibited 'commission, bonus,
or other incentive payment. , (citing 20 U.S.C. 1094(a)(20))V Thus, Corin~hian Collt:;:ges'
.termination ofunderperforming recruiters does not fall under the HEA incentive payment
prohibition at issue in this case.

Third, Relators argue that Corinthian Colleges incentivized recruiters to retain students
for a sufficient period to qualify for federal financial aid benefits. See Compl. ~ 32. As with the
termination claims, Relators' retention claims do not fall under the HEA prohibition of
commissions, bonuses, or other incentive payments. Indeed, it is difficult to understand how the
retention of students nu1s counter to the goals of the HEA.
b.

Scienter

The Bott case involved substantially similar claims litigated by the same lawyers
representing Relators in this case.
CV-90 (06/04)

CIVIL MINUTES- GENERAL

PageS of8

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Case 2:07-cv-01984-PSG-MAN

Document 66

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Filed 12/04/2009

Page 6 of 8

0
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6

CIVIL MINUTES- GENERAL

CV 07-1984 PSG (MANx)

December 4, 2009

United States of America ex rei. Nyoka Lee et al. v ..Corinthian Colleges et ai.
Even if Relators had adequately pleaded a false.statement, Corinthian Defendants argue
that their reliance on the safe harbor negates scienter. In order to counter this point, Relators try
to argue that the safe harbor is facially invalid. See Opp. 13:3-20. However, the Court does not
address the validity of the safe harbor because, even if invalid, Corinthian c olleges reasonably .
relied upon the provision and, thus, could not have acted with scienter. See United States ex rei.
Hochman v. Nackman, 145 F.3d 1069, 1074 (9th Cir. 1998) ("Absent evidence that the
defendants knew that [the regulatory guidelines] on which they relied did not apply ... no False
Claims Act liability can be found."); Bott, 2008 WL 59364, *1 ("We need not determine whether
the safe harbor regulation is actually valid. If defendants complied.with a facially valid
regulation, relators cannot show the required scienter under the False Claims Act for actions
after the safe harbor regulation was promulgated The safe harbor regulationis not facially
invalid because the [HEA] prohibits direct or indirect bonuses, while the regtilation specifies
permissible means by which to calculate base salaries." (internal citation omitted)).
c.

Dismissal with Prejudice

The Court finds that Corinthian Colleges' Compensation Program falls within the safe
harbor, C.F.R. 668.14(b)(22)(ii)(A), and thus Relators fail to allege that Corinthian Colleges
made a false statement to the Department ofEducation. Accordingly, Rel~tors' FCA Claims
. against Corinthian Colleges are dismissed. See Ashcroft, 129 S. Ct. at 1950 ("Rule 8 marks a
notable and generous departure from the hyper-technical, code-pleading regime of a prior era,
but it does not unlock the doors of discovery for a plaintiff armed with nothing more than
conclusions.").
Ordinarily, courts permit leave to amend upon dismissal of a claim, ''unless it determines
that the pleading could not possibly be cured by the allegation of other facts." See Lopez v.
Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citation omitted). In this case, Relators' FCA
claims are legally implausible because, as previously discussed, the compensation program
attached to the Complaint shows that Corinthian Co1leges' incentive program is not based solely
on recruitment See Ashcroft, 129 S. Ct. at 1950. Relators have not pled any facts to support a
reasonab~e inference that Cminthian Colleges' incentive program violates the HEA, nor have
they suggested in the Complaint or in the opposition that the incentive program is a "sham
mechanism".for circumventing the HEA. See Bott, 2008 WL 59364, at *I. For these reasons,
the Court dismisses Relators' FCA claims against Corinthian Colleges with prejudice.
2.
cv-90 (06/04)

State Law Claims

CIVIL MINUTES- GENERAL

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0
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6

CIVIL MINUTES - GENERAL

CV 07-1984 PSG (MANx)
United States of America ex rei.

December 4, 2009
Lee et al. v. Corinthian Colleges et al.

In addition to their FCA claims, Relators also allege various state law claims. The Fifth
Cause of Action is: for common law fraud, the Sixth Cause of Action is for unjust enrichment,
and the Seventh Cause of Action is for payment under mistake of fact. However, Relators lack
standing to pursue these claims because they did not personally suffer an injury as a result of
Corinthian Colleges' alleged misconduct. See United States v. Eastniqn Kodak Co., 98 F. Supp.
2d 141, 149 (D. Mass. 2000) (noting that the FCA "does not give relators the right to assert
common law claiins on behalf of the United States"); 1 John T. Boese, Civil False Claims and
Qui Tam.Actions 2.11 (3d ed. supp. 2009) (noting that the FCA "has not been-interpreted to
provide relators with any sort of 'supplemental standing' to assert common law claims along
with proper FCA claims"). Therefore, the Court dismisses Relators' state law claims as to all
Defendants with prejudice for lack of standing.
B.

Claiins Against the Individual Defendants and Ernst & Young

The liability of the Individual Defendant') and Ernst & Yovng is contingent upon
.. Corinthian Colleges' liability. If Relators fail to state a clajm under the FCA against Corinthian
Colleges, they cannot state a claim under the FCA against the Individual Defendants (who
allegedly directed Corinthian Colleges' recruitment and funding policies) and Ernst & Young
(who allegedly submitted mdependent reports to the Department of Education on behalf of
Corinthian Colleges). As discussed previously, Relators cannot state a plausible claim against
.Corinthian Colleges under the FCA. Accordingly,_Relators fail to state a plausible chiim against
the fudividual Defendants and Emst & Young. Therefore, as with their claims against
Corinthian Colleges, Relators' FCA Claims as against the Individual Defendants and Ernst &
Young are dismissed with prejudice. Furthermore, as previously stated, Relators' state law
claims are dismissed as to all Defendants with prejudice for lack of standing.
IV.

Conclusion
Based on the foregoing, the Court:

1.

GRANTS the Motion to Dismiss filed by Corinthian Colleges, Inc., David

Moore, Jack D. Massimino, Paul St. Pierre, Alice T. Kane, Linda A .
Skladany, Hank Adler, and Terry 0. Hartshorn with prejudice; and

2.

GRANTS the Motion to Dismiss filed by Ernst & Young with prejudice.

The Clerk is directed to close the case.

CV-90 (06104)

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0
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6

CNILN.UNUTES-GENERAL
CV 07-1984 PSG (MANx)

December 4, 2009

United States of America ex rei. Nyoka Lee eta/. v. Corinthian Colleges et al.

IT IS SO ORDERED.

CV-90 (06/04)

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- - . -

Sellers, Fred
From:
Sent:
To:
Cc: .
Subject:
Attachments:

Woodward, Jennifer
Thursday, December 17, 2009 2:43PM
Shireman, Bob; McCullough, Carney; Sellers, Fred; Kolotos, John; Clough, Ann ; Guthrie,
Marty
Jenkins, Harold; Wolff, Russell .
FW: Corinthian Colleges qui tam decision
.
Order dismissing US ex rei Lee v Corinthian Colleges case.pdf

Colleagues:

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Document 66
Filed 12/04/2009

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6
CIVIL MINUTES - GENERAL
CV 07-1984 PSG (MANx)

December 4, 2009

United States of America ex rel. Nyoka Lee et al. v. Corinthian Colleges et al.

The Honorable Philip S. Gutierrez, United States District Jl,fdge

Wendy K. Hernandez

Not Present

n/a

Deputy Clerk

Court Reporter

Tape No.

Attorneys Present for Plaintiff(s):

Attorneys Present for Defendant(s):

Not Present

Proceedings:

Not Present

(In Chambers) Order Granting Defendants' lVIotions to Dismiss [35, 36_j

Pending before the Court are Defendants' motions to dismiss. The Court fmds the
matters appropriate for decision without oral argument. See Fed. R. Civ. P. 78; L.R. 7-15. After
considering the moving and opposing papers, the Court GRANT~ Defendants' motions.

I.

Background

Defendant Corinthian Colleges, Inc. ("Corinthian Colleges") operates for-profit

vocational schools throughout the United States. See Compl. ~ 2. Defendants Jack Massimino,
David Moore, Paul St. Pierre, Alice T. Kane, Linda A. Skladany, Hank Adler, and Terry 0.
Hartshorn (''the Individual Defendants") (together with Corinthian Colleges, corinthian
Defendants") are members of Corinthian Colleges' board of directors. See id. , 15. Corinthian
Colleges-allegedly thrives on its recruiting practices, receiving billions of dollars in fmancial aid
under Title N of the Higher Education Act ("IlEA"), 20 U.S.C. 1094(a)(2). See .id. ~,. 5, 6.
In an effort to increase enrollment-andthus federal funding under Title IV-Corinthian
Colleges aUegedly offers its rec11l;iters incentive payments and strict quotas for enrolling new
students. See id. m/31 , 32. According to the Complaint, "recruiters that exceed their quot~
receive raises of2.5% to 10% of their base salary, every six months, depending on the number of
new recruits they sign up." !d. The payment schedule is presented in the Admissions
Representative Compensation Program ("Compensation Program"), attached to the Complaint as
Exhibit A. Additionally, newly recruited students are allegedly required to remain enrolled for a
fixed period in order to count toward the recruiter's quota. See id. ~[ 32.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37I JS-6

CIVIL MINUTES- GENERAL

December 4, 2009

CV 07-1984 PSG (MANx)

United States of America ex ref. Nyoka Lee et al. v. Corinthian Colleges et al.
According to the Complaint, Corinthian Colleges' incentive payments violate the
eligibility requirements of the HEA, _w hich prohibits "any commission, bonus, or other incentive
payment based d_irectly or indirectly on success in securing enrollments or financial aid to any
persons or entities engaged in any student recruiting or admission activities or in making
decisions regarding the award of student fmancial assistance." 20 U.S.C. 1094(a)(20).
Corinthian Colleges was required to epter into a program participation agreement ("~PA") with
the Department of Education in order to qualify for funding under HEA programs. See 20
U.S.C. l094(a). Additionally, Corinthian Colleges was required to submit annual audit reports
and reports attesting to the institution' s compliance with the HEA. Defendant Ernst & Young
L~P ("Ernst & Y ourig") allegedly assisted Corinthian Colleges
submitting its reports to the
Department of Education. See Compl. ~ 33-34, 37. According to the Complaint, Corinthian
Colleges misrepresented its eligibility status to the Department of Education in its PPA and
periodic reports because its Compensation Program allegedly violated the HEA prohibition
. against incentive payments. See id. ~~ 34-3~. Because it allegedly submitted reports to the
Department of Education on behalf of Corinthian Colleges, Ernst & Young also allegedly made
false statements to the federal government. See id. ~ 37.

in

On March 26, 2007, Relators Nyoka Lee and Talala Mshuja ("Relators") filed a qui tam
action against Corinthian Defendants and Ernst & Young under seal. See 31 U.S.C. 3730(b)(2).
On February 25,2009, the United States elected not to intervene in the action, leaving only
Relators to pursue their claims. See Dkt. #21. R~lators allege four causes of action under the
False Claims Act ("FCA"), 31 U.S.C. 3729(a)(l), (2), (3), (7) ("the FCA Claims"). See
Compl. ~~50-61. Additionally, Relators include causes of action for common law fraud, unjust
enrichment, and payment under mistake of fact (''the state law claims") .. See id. ~~ 62-76.
IL

Legal Standard

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UNITED STATES ofsTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA
#35/36/37(JSw6

CIVIL MINUTES - GENERAL

CV 07-1984 PSG
United States of America ex ref. Nyoka Lee et al. v. Corinthian Colleges et al.
plausible claim to relief. See id.
In deciding a Rule 12(b)(6) motion, the court must engage in a two-:step analysis. See id.
at 1950. First~ the C.ourt must accept as true all non-conclusory, factual allegations made in the
complaint.. See Leatherman v. Tarrant County Narcotics Intelligence & Coordination. Unit, 507
U.S. 163, 164,'113 S. Ct..1160, 122 L. Ed. 2d 517 (1993). Based upon these allegations, the
Court Jllust draw all reasonable inferences in favor of ~e plaintiff. See Mohamed v. Jeppesen
Dataplan, Inc., 579 F.3d 943, 949 (9t4 Cir. 2009). Second, after accepting as true all non-.
conclusory allegations and drawing all reasonable inferences in favor of the plaintiff, the Court
must then determine whether the complaint alleges a plausible claim to relief. See Ashcroft, 129
S. Ct. at 1950.

Under Federal Rule of Civil Procedure 9(b), qui tam actions must be pled with
particularity because they involve allegations of fraud. See Fed. R Civ. P. 9(b); Ely-Magee v.
California, 236 F.3d 1014, 1018 (9th Cir. 2001) ("The FCA is an anti-fraud statute. ... As such,
we hold that complaints brought under the FCA must fulfill the requirements of Rule 9(b)."),

ill.

Discussion

On August 3, 2009, Corinthian Defendants filed a Motion to Dismiss Pursuant to Federal

Rules of Civil Procedure 12(b)(6), 12(b)(l), and 9(b). On the same day, Ems~ & Young filed a
separate Motion to Dismiss Pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(l), and
12(b)(6V
claims against Corinthian Colleges will be assessed, followed by the.claims
against the Individual Defendants and Ernst & Young.

The

A.

Claims Against Corinthian Colleges

Relators' claims against Corinthian Colleges hinge upon the alleged false statements
made by Corinthian Colleges to the Department of Education. In particular, Relators claim that
Corinthian Colleges purported to comply with the HEA in its PPA and numerous reports fi led
whh the Department of Education, while in fact it was awarding incentive payments to recruiters
in v.iolation of the statute. For the reasons that follow, Relators' FCA and state law claims
against Corinthian Colleges fail.

Corinthian Defendants j oih in Ernst & Young's motion "to the extent the motion is not
specific to [Ernst & Young]." Corinthian Defendants' Mot., 7 n.2.
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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6

CIVIL MINUTES -GENERAL

~,:-:~e-.~:~).~j

~~-C_
V_0_7_-1_9_84_P
_S_G
_
(MAN
_ _x_)_._ _ _ _ _ _ _ :Hi.~j December 4, 2009

1.

The FCA Claims

In order to state a claim under the FCA, Relators must establish the following elements:
(1) a false statement or fraudulent conduct, (2) scienter, (3) materiality of the statement or
conduct, and (4) payments made by the government. See US. ex rei. Hendow v. Univ. of
Phoenix, 461 F.3d 1166', 1174 (9th Cir. 2006).
a.

False Statement

Relators' FCA Claims all require the making or use of a "false" statement? H owever,
Re1ators fail to allege sufficient facts to infer that Corinthian Colleges made a false statement to
the Department of Education. First, Corinthian Colleges' Compensation Program falls directly
within an HEA "safe harbor" concerning incentive payments. Thus, any representations -made to
the Department of Education that its incentive program complies with the -HEA's prohibition on
incentive payments could not have been "false." According to Department ofEducatiori
regulations pertaining to PPAs, a participating institution may compensate employees for
re.cru~tment so long as adjustmentsare not made more than twice per year and based "solely'' on
recruitment. See 34 C.F.R 668.14(b)(22)(ii)(A) ("The payment of fixed compensation, ~uch
as a fixed annual salary or a fixed hourly wage, as long as t hat compensation is not adjusted up
or down more than twice during any twelve month period, and any adjustment is not based solely
on the number of students recruited, admitted, enrolled, or awarded fmancial aid." (emphasis
added)). Indeed, the Department of Education implemented this safe harbor in recognition that
"by the very job description, a recruiter's job is to recruit." 67 Fed. Reg. 67056.

In this case, Relators claim that Corinthian Colleges awarded raises to recruiters if they
exceed their recruiting quotas, no more than twice per year. :See Compl. ~ 31. T~is practice falls
2

Relators' First Cause of Action under 31 U.S.C. 3729(a)(l) requires proof of a "false
or fraudulent claim for payment" made to the United States goverrunent. 31 U.S.C. 3729(a)(1)
(emphasis added). Relators' Second Cause of Action under 31 U.S.C. 3729(a)(2) requires .
proof that the defendant made or used "a false record or statement to get. a false or fraudulent
claim paid or approved by the Government." 31 U.S.C. 3729(a)(2) (emphasis added).
Relators' Third Cause of Action under 31 U.S.C. 3729(a)(3) requires proof of a conspiracy to
defraud the government by "getting. a false or fraudulent claim allowed or paid." 31 U.S.C.
3729(a)(3) (emphasis added). Finally, Relators' Fourth Cause of Action under 31 U.S.C.
3729(a)(7) requires proof of a "false record or statement" made to conceal or avoid an obligation
to pay money or property to the government. 31 U.S.C. 3729(a)(7) (emphasis added).
CV-90 (06/04)

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UNITED STATES DISTRICT COURT

CENTRAL DISTRJCT OF CALIFORNIA
#35/36/37/JS.:.6
CIVIL MINUTES - GENERAL
CV 07:.1984 PSG (MANx)

December 4, 2009

United States of America ex rei. Nyoka Lee et al. v. Corinthian Colleges eta/.
within the sate harbor because pay increases are made at most twice per year ana Re1ators do not
allege that the increase is made solely on the basis of new enrollees. Indeed, Relators attached a
copy of the Compensation Program detailing the alleged incentive payments, and this docwnent
makes clear that increases in ba$e salaries are n_o t made solely upon the number of new enrollees.

Recruiters are eligible under the Compensation Program only if they recruit a nrinimum
of 40 new students in addition to achieving minimum performancestandards and an overall
performance rating of"Good" on the Employee Performance Review Form. See Compl., Ex. A.
Thus, salary increases are made on the basis of multiple criteria, with the number of new recruits
being one of the considerations. Furthermore, recruiters receive a greater increase if they receive
a higher performance rating. For example, a recruiter who receives a "Good" rating plus 40 new
students will earn a 2.5% salary increase while a recruiter who receives an "Excellent" rating
plus 40 new studentswill earn a 5% salary increase. Thus, the CompenSation Program does not
tie increases in salary solely to the number of students recruited and only adjusts salaries at most
twice per year. As such, the Compensation Program falls within the safe harbor.
Second, Relators argue that Corinthian Colleges terminates recruiters who fail to satisfy
their quotas for new students. See Compl. ~ 31. However, the termination of recruiters is.not
covered by the HEA prohibition on iilcentive payments. See U.S. ex rei. Bott v. Silicon Valley
Colleges, No. 06-15423, 2008 WL 59364, *1 (9th Cir. Jan. 4, 2008) ("The decision to flre an
employee is not covered by the Act because termination is not a prohibited 'commission, bonus,
or other incentive payment., (citing 20 U.S.C. 1094(a)(20))V Thus, Corinthian Colleges'
termination of underperforming recruiters does not fall under the HEA incentive payment
prohibition at issue in this case.
Third, Relators argue that Corinthian Colleges incentivized recruiters to retain students
for a sufficient period to qualify for federal fmancial aid benefits. See Camp/. ~ 32. As with the
termination claims, Relators' retention claims do not fall under the HEA prohibition of
commissions, bonuses; or other incentive payments. Indeed, it is difficult to understand how the
retention of students runs counter to the goals of the HEA.

b.

Scienter

The Bott case involved substantially similar claims litigated by the same lawyers
representing Relators in this case.

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0
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6

CIVIL MINUTES- GENERAL

CV 07-1984 PSG (MANx)

December 4, 2009

United States of America ex rel. Nyoka Lee et al. v . .Corinthian Colleges et al.
Even if Relators had adequately pleaded a false statement, Corinthian Defendants argue
that their reliance on the safe harbor negates scienter. In order to counter this point, Relators try
to argue that the safe harbor is facially invalid. See Opp. 13:3-20. However, the Court does not
address the validity of the safe harbor because, even if invalid, Corinthian Colleges reasonably
relied upon theprovision and, thus, could not have acted with scienter. See United States ex rei.
Hochman v. Nackman, 145 F.3d 1069, 1074 (9th Cir. 1998) ("Absent evidence that the
defendants knew that [the regulatory guidelines] on which they relied did not apply ... no False
Claims Act liability can be found.';); Bott, 2008 WL 59364, *1 ("We need not determine whether
the safe harbor regulation is actually valid. If defendants complied with a facially_valid
regulation,. relators cannot show the required scienter under the False Claims Act for actions
after the safe harbor regulation was promulgated. The safe harbor regulation is not facially
invalid because the [HEA] prohibits direct or indirect bonuses, while the regulation specifies
permissible means by which to calculate base salaries." (internal citation omitted)).
c.

Dismissal with Prejudice

. The Court finds that Corinthian Colleges' Compensation Program falls within the safe
harbor, C.F.R. 668.14(b)(22)(ii)(A), and thus Relators fail to allege that Corinthian Colleges
made a false statement to .t he Department ofEducation. Accordingly, Relators' FCA Claims
against Corinthian Colleges are dismissed. See Ashcroft, 129 S. Ct. at 1950 ("Rule 8 marks a
notable and generous departure from the hyper-technical, code-pleading regime of a prior era,
but it does not unlock the doors of discovery for a plaintiff armed with nothing more than
conclusions."):
Ordinarily, courts permit leave to amend upon dismissal of a claim, "unless it determines
th;it the pleading could not possibly be cured by the allegation of other facts." See Lopez v_
Smith, 203 F .3d 1122, 1130 (9th Cir. 2000) (citation omitted). In this case, Relators' FCA
claims are legally implausible because, as previously discussed, the compensation program
attached to the Complaint sP,ows that Corinthian Colleges' incentive program is not based solely
on recruitment. See Ashcroft~ 129 S. Ct. at 1950. Relators have not pled any facts to support a
reasonable inference that Corinthian Colleges' incentive program violates the HEA, nor have
they suggested in. the Complaint or in the opposition that the incentive program is a "sham
mechanism" for circumventing the HEA. See Bott, 2008 WL 59364, at *1. For these reasons,
the Court dismisses Relators' FCA claims against Corinthian Colleges with prejudice.
2.
CV-90 (06104)

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0
UNITED STATES DISTRJCT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37/JS-6

CIVIL MINUTES -GENERAL

CV 07-1_984 PSG (MANx)

December 4, 2009

United States of America ex rel. Nyoka Lee et al. v. Corinthian Colleges et at.
In addition to their FCA claims, Relators also allege various state law claims. The Fifth
Cause of Action is for common law fraud, the Sixth Cause of Action is forunjust enrichment,
and the Seventh Cause of Action is for payment under mistake of fact. However, Relators lack
. staOding to pursue these claims because they did not personally suffer an injury as a result of
Corinthian Colleges' alleged misconduct. See United States v. Eastman Kodak Co., 98 F. Supp.
2d 141, 149 (D. Mass. 2000) (noting that the FCA "does not give relators the right to assert
common law claims on behalf of the United States'' ); 1 John T. Boese, Civil False Claims and
Qui Tam
2.11 (3d ed. supp. 2009) (noting that the FCA "has not been interpreted to
. Actions
.
prov~de relators with any sott of 'supplemental standing' to assert common law claims along
with proper FCA claims"). Therefore, the Court dismisses Relators' state law claims as to all Defendants with prejudice for lack of standing.
Claims Against the Individual Defendants and Ernst & Young

B.

The liability of the Individual Defendants arid Ernst-&-Young is contingent upon

Corinthian Colleges' liability. If Relators fail to state a claim under the FCA against Corinthian
Colleges, they cannot state a claim under the FCA against the lndividu~l Defendants (who
allegedly directed Corinthian Colleges' recruitment and funding polides) and Ernst & Young
(who allegedly submitted independent reports to the Department of Education on behalf of
Corinthian Colleges). As discussed previously, Relators crumot state a plausible claim against
Corinthian Colleges under the FCA. Accordingly, Relators fail to state a plausible claim against
the Individual Defendants and Ernst & Young. Therefore, as with their claims against
Corinthian Colleges, Relators' FCA Claims as against the Individual Defendants and Ernst &
young are dismissed with prejudice. Furthermore, as previously stated, Relators' state law
cl~ims are dismissed as to all Defendants with prejudice for lack of standing.
IV.

Conclusion
Based on the foregoing, the Court:
1.

GRANTS 1he Motion to Dismiss filed by Corinthian Colleges, Inc., David

Moore,.Jack D. Massimino, Paul St. Pierre, Alice T. Kane, Linda A . .
Skladany, Hank Adler, and Terry 0. Hartshorn with prejudice; and

2.

GRANTS the Motion to Dismiss filed by Ernst & Young with prejudice.

The Clerk is directed to close the ca<>e.

CV-90 (06104)

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
#35/36/37 /.JS-6

CIVIL MINUTES :- GENERAL

CV 07-1984 PSG (MANx)

December 4, 2009

United States of America ex rei. Nyoka Lee et al. v. Corinthian Colleges eta/.

IT IS SO ORDERED.

CV-90 (06/04)

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Sellers, Fred
From:

Sent:
To:

Cc:
Subject:
Attachments:

McCullough, Carney
Wednesday, January 27, 2010 8~17 AM
cbagemihl@cds2.com; Elaine Neely; Sellers, Fred
Guthrie, Marty; Kolotos, John
RE: lncentive.comp
REV Incentive Comp language under consideration

ElaineSorry, but I didn't get this until late last night and didn't have access to my files. Attached is an e-mail with the latest
version included. Hope this is still helpful.

Carney

From: cbagemihl@cds2.com fmailto:cbagemihl@cds2.com]

Sent: Tuesday, January 26, 2010 6:49PM

To: Elaine Neely; McCullough, Carney; Sellers, Fred
Su~ject:

Re: Incentive comp

Elaine,
. I run sorry, but ED only gave us flat paper. Carney or Fred can you send Elaine the draft language?
Thx
Cb
Sent from my Verizon Wireless BlackBerry

From: Elaine Neely <eneelv@kaplan.edu>

Date: Tue, 26 Jan 2010 18:38:13 -0500

To: Craig Bagemihl<cbagemihJ@cds2.com>; Chip Cameron<fxcameo@gmail.com>
Cc: Elaine Necly<eneely@.kaplan.edu>
Subject: Incentive comp
Can you send me the DOE's incentive comp language in email? We are trying to

work on edits.

--------

From: Craig Bagemihl fmailto:cbagemihl@cds2.coml

Sent: Friday, January 221 2010 S:03 PM

To: 'Amanda Modar'; -'Angela Peoples'; 'Anne Gross'; 'Anthony Mirando'; 'Barbara Brittingham'; 'Bob Moran'; 'Carney
McCullough'; 'Carol Lindsey'; 'Chip Cameron'; 'Chris Young'; 'Craig Bagemihl'; 'David Hawkins'; 'David Rhodes'; 'David
Waldschmidt'; 'Deanne Loonin'; Elaine Ne~ly; 'Fred Sellers'; 'Janet Dodson'; 'Jim Simpson'; 'Joan Berkes'; 'Joan Zanders';
'Joe Pettibon'; 'Kathryn Dodge'; 'Margaret Rei~er'; 'Marshall Hill'; 'Maureen Budetti'; 'Michale McComis'; 'Phil Asbury';
'Ralph Wolff'; 'Rich Williams'; 'Richard Heath'; 'Sharon Tanner'; 'Susan Lehr'; 'Susan WiHiams'; 'Terry Hartle'; 'Todd Jones';
'Val Meyers'
Subject: Monday's Opening Session
Good afternoon everyone,
Please be advised that PBS FRONTLINE producers plan to be at the negotiated rulemaking session being held at 1990 K
Street, likely on Monday, Jan. 2.5. They will film a sweep of the meeting room to show committee members as they
1

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arrive, and ta pe a few minutes of introductions before the formal meeting starts. The cameraman will then leave. The
crew will be
set up outside the committee room nearby and they may wish
speak with participants
during breaks.
.
.
.

to

One of the Education Department's senior public affairs specialists, Stephanie Babyak, will accompany t he FRONTLINE
crew the entire time they are in the building but will not monitor the interviews with committee members or
pa rticipants.
As you no doubt recall, members of ! he negotiated rule making committee are governed by the protocols that were
accepted during the first meeting. Following is a pertinent excerpt from those protocols:
"VI. Safeguards for Members
C.

Contact w ith the media, the investment community, and other organizations outside the community of interest
represented by the member will generally be limited to discussion of the overall objectives and progress of the
negotiations. Members will refrain from characterizing the v iews, motives, and interests of other members
duting contact with the media, the investment community, and other organizatio,ns outside t he community of
interest represented by the member."

Look forward to seeing you on Monday afternoon.

Vr,
cb

Craig Bagemihl
Command Decisions Systems and Solutions
Suite #714
1800 K Street NW
Washington, DC 20006
202.296.2528
l(b)(6)

-- - - -

. ...:... ~ ._.: _:..:... :.. .: .... . ::...

------- -

_ ::: . .~

.......:...

- - ----~

.::.

:-

. ....

____ _

Incentive Compensation Draft Language

REV January 26, 2010

Proposed New Rooulation as Revised by the U.S. Department of Education:

668.14{b)

3
4
5
6
7

8
9
10
11
12

13
14

(22) It will not provide any commission, bonus, or other incentive payment based
directly or indirectly upon success in securing enrollments or ffnancial aid to any person
or entity engaged in any student recruiting or admission activities or in making decisions
regarding the award of student financial assistance, except that this paragraph does not
apply to the recruitment of foreign students residing in foreign countries who are not
eligible to receive Federal student assistance. [Strike the 12 "Safe Harbors."]
Proposed New Regulation as Revised by the Non-Federal Negotiators and by the
Department:

'L . . . . . . . . . . . . .. . . . . ...... . . . . ...

~22)(i) (A}

.. ... - - - . - --- - . . . . .. ........ .... . . .. . ... .... ..

. . . ... ......... . . . . ...

Exceet as expressly_ provided in earagraph {b)(22l(ii) of.this section, it will not ~

Deleted: 668.14(b)IJ
(22) It wll root prollide any commission, bollU$,
or other incenlive payment as folows~

11

15

provide any commission. bonus. or other incentive payment based on success in

16

s~uring enrollments or ihe award of financial aid, to any employee who works for an

17

eligible institution <or any organization or employee of an organization that is a

18 contractor to an eligible institution) and who is engaged in student recruitment

19
. 20

admission activities, or in making decisions regarding the award of financial aid .

~ The restrictions in paragraph (b)(22) of this section do not apply to the

21

recruitment of foreign students res!ding in foreign countries who are not eligible to

22

receive Federal student assistance.

23

I. Employees who work for in$1~uUons of higher

education (or organizations. or employees of
organizalions, that are conlr8d0rs to klsthutions
of higher education) who are engaged in
student reauitment, admlss!oo ac1illities, or in
making decisions regarding the award of
financial aid may not re<:eive any commission,
bonus. or other inocntive payment based on
success in securing student emollmenta or
financial aid and v.tlk:h Is determined on a per
student C21culation. 11

(ii} Eligible institutions (or organizations that are contractors to eligible institutions)

24

may make merit-based adjustments to employee compensation provided that such

25

adjustments are not based on success in securing student enrollments or the award of

26

financial aid. The same limi tation shalt also apply to entities engaged in student

i . . Institutions of ~her education (or

organizations that arc contractors to lnslltutlona
Of higher education) may make merit based
adiuSiments lo emplOyee oompe11satlon
provided that they do not malta more than tWo
such adjustments In a calendar year and that
wch adjustments are not based on success ifl
$1!CUI'inQ student enrolmoots on a per student
~is. The same llm~otion shan also apply to
enUUes ef193lled in lltudent recruiting or
admission activilies rx in makitlg decisions
regarding the aw;xd of Sludenffinanclal
a~~Ststance. Such me(otbased adjuSiments may
consider perfon'nanca against lnstilullonal
goals. such as total enrollment. completion, or
grodu3tion, but shall be pr1marily based on
~alitalive factor& as de18nnlned by llle
lnstitulion.1(

: 11

; iii .. 668.14(b)(22)(1 H) do nofapply to the

: recruitment or foreign studen1s residing in
! foreign countrtes who are not eligibte to receive
Federal studentasslslanoc.t
Deleted: (S1tike the 12 "Sate Harbors. '1 11
.:.--....---........ . Pege llo'eak..................... - .....

-..

~.; _-:

~ - -

- :_.::

-.- . .

_- -

_:-..::._

Incentive Compensation Draft Language

REV January 26, 2010

recruiting or admission activities or in making decisions regarding the award of student

financial assistance.

3
4

~~-~-~~d.inRaragraQh {b}(~) of this section.(A) ,Com_l!1~~~ion. bonus,

or other _______ __ .< ......

....

Deleted: Dellnitlons -

incentive payment ~~-~_11~ a ~\-!!)')_.<?f. ~9D~Y. .<?!. ~~~-e!f1!~.9. ~f.Y.~IJ!.-!~..P~!~ .t<?. ~r_gi_~~fl _t_<?_ ~ ______ .. , '.1

person Of an entity because of the success in securing student enrollments or the.

awarg of financial aid. It does not include token gifts that eligible institutions provide to

their students or alumni provided that the token gifts are not in the form of money, no

more than one gift annually is provided to an indivi~ual, and the cost or fair market value

10

Deleted: till s part, t

Deleted:.

.
------- .._

Deleted: '
De.le~:

provisioo

of the gift is not more than $50.

11

<?f.)~9_ir~~~ -~-qi.YJ!i_~_s Jh~~- a,e~-~~~!1-.<?.~ ..

12

{B). Securing stu~en_t~nrollment..~~-~-~~ -~~r~ct

13

entitY..~-~9('19~~.[1)_, for the pytp9se of ttl~. C'l9.1!lj~~~~l)-..2Lill~~i-~ l-~~j~l)..<?!.C'l .~.t.uder:-.t. for an:t _., ..

Deleted: success In secll'illg

'~

<?f.~D-~D~i!i!L~.i~.!~ .~--~!~<;f.E!!n!:.. ................................................ :.:-

period oftime or the,eward

15

ill.!.f:l.~.~~-~g~ym~.l? _\l)_c;:!~.g~ ~\~~.c::t r~~~l:IJ~~~':I~.~C?.11.t~~~ .in_<'li1.Y. f~~l)!.."Y\th.~ .P.~9.~P.~~~!~~---- .... ,...

16

student, such as pr~~~!IIJ~~~~~ .C?!.~~~~-~!1).9. ~~~lti~~-- -~~jl~ ~~~~g . ~1)--~P.P.~i~ti)').~-~~J~ ....

17

visit the enrollment office, attendance at such appointment, or signing an enrollment

18

agreement or financial aid application.

ImI~-~-~~ _act(yJ~l~-~-~~ -~~!. !t:1.~~~de. ~~~!!'19 -~-P.?.Y.rn~r1t

to

Deleted: alld

-Deleted: provisioo

student contact infarmation provided that such payment is not based on the number

21

-of students who apply or enroll.

. ---

Deletecl: i

... . .

~ -~~_i~_q-P.~r:t.Y~ !~r. !~~- P.r~~i~iC?.~. ~f. .:.: ....

20

Deleted: .
Deleted:

Deleted: ii.. These actlvllles Include oblalning

a atudenrs attelld311ce for any period of tlme
less lhan thai required to complete tile program
and obtain a oertificate or degree. 1

ii
.~-===---------===~-~
Deleted: .

Deleted: lhal result in

...... .

22

"I

Deleted: s

.. - .. Deleted: ies

14

19

Deleted:.

Incentive Compensation Draft Language

REV January 26, 2010

{C). J;nrollmentm~?!r".~. m~ -~_dmissio_n..m.~~-t.rJ~':l)~~!<?n. of.a..sw~.~n~. !'.1.~<?. ~~ -~ligit?!~ .......... -:::::. Deleted:.

Deleted:"

institution,................. , ..................................................................... ............ :.............. . Deleted: and

Dele.led: of higher education

- ........ - --------- .- -- --- ~ ----------- ..... -- -- --- ..

---

- -

--- - ...

..... - ---

==-:=,..,..---=-=== = =--:....-:7~.:-:::-.=.-====-=---::--:~-Sellers, Fred

Susan Hattan [susan@naicu.edu]
Friday, August 20; 2010 2:02PM
Sellers, Fred
RE: Newslist: For-Profit Trouble Ahead: DoE Letter to Sen. Harkin (Barrens)

From:
Sent:
To:
Subject:

Thanks, F red . Sara.h mentioned she had spoken further with you about all this. Obviously a tough issue for us.
Susan
-----Original Message---.
From: Sellers, Fred [mailto:Fred.Sellers@ed.gov]
Sent: Thursday, August 19, 2010 8:02 PM
To: Susan Hattan .
Cc: Sarah Flanagan
Subject: RE: Newslist: For-Profit Trouble Ahead: DoE l etter to Sen. Harkin (Barrons)
. Yes and I f igured it out that t he full letter is on ED's policy letters website:
http://www2.ed .gov/news/we b/latest/what snew .jht ml?pageN umber= 1&perPage=10&category9=on
One thing I can note is t hat it is written in t he context of for-profits and t he GAO findings.
Fred

From: Susan Hattan [mailto:susan@naicu.edu]

Sent: Thursday, August 19, 2010 4:59PM
To: Sellers, Fred
Cc: Sarah Flanagan
Subject: FW: Newslist: For-Profit Trouble Ahead: DoE letter to Sen. Harkin (Barrons)
Fred-This is the letter we mentioned to you that deals with the "license" issue.
All best.
S1,1san
Barrens
Friday, August 13, 2010 ET
For-Profi~ Trouble

Ahead: DoE Letter to Sen. Harkin

By Tiernan Ray
Shares of for-profit college operators Apollo Group (APOL), DeVry (D~, Grand Canyon Educ ation
(LOPE) and others continue to trade down as U.S. Education Secretary Arne Duncan today sent a letter
to Senator Tom Harkin (Dem., Iowa), head of the Senate Health , Education, labor and Pensions
committee, promising to "respond quickly and aggressively" to the findings of fraud unveiled by the
Government Accou ntability Office during hearings he ~d by Harkin on August 4th .
At that hearing, GAO rep George Kutz said undercover investigators for the GAO found that 15 schools
examined provided "deceptive and questionable" information to students, while four encouraged
prospective students to commit fraud in filing out forms such as financial assistance requests.

====~~====~================ ============~~===- =--=

. -==--=-=-=--=========~
Following are excerpts from the letter, sent to me by the press office at the Department of Ed, which was
also sent to Senator Mike Enzi (Rep., Wyoming):

Dear Mr. Chairman:

The unethical and potentially illegal practices uncovered by GAO are unacceptable. [ ..] The Department's
Office of Inspector General (OIG) will examine GAO's specific findings. The 0 /G will take appropriate
action, including referring for criminal prosecution all im;Jividuals who are determined io have been

involved'in fraudulent or criminal activities.

Federal Student Aid (FSA) is a/so reviewing the GAO findings as a possible basis for investigations of
and enforcement actions against schools. FSA may demand the r eturn of improp erly obtained funds
or terminate an institution's eligibility to participate in the Federal student aid programs.
FSA is a/so in the process of hiring more than 60 additional staff to strengthen oversight [ ..]. In the near
future, FSA will also hire a new Chief Customer Experience Officer to manage consumer protection
activities.
In addition, we will be reviewing GAO's.undercover project and its methods as well as the similar
practices of other-Federal agencies. { ..] the Deparlment will be developing a program to use these
methods to assess institutional compliance wnh existing statutory and regulatory requirements [. ..].
The Department has proposed new regulations for program integrity for Title IV programs that are on
schedule to be finalized by November 1, 2010, and, under the HEA master calendar, will be effective July
1, 2011. The proposed rules include enhanced state enforcement measures, additional guidance on
misrepresentation, and changes to rules on incentive compensation. [. .]
Under the proposed rules, schools receiving Federal student a~d would be required to have a
license from a state entity that maintains a list of authorized institutions and has procedures to accept
and investigate complaints, and to remove institutions from the list. The loss of a license from this agency
would mean that the school would become ineligible to participate in the Federal student aid programs.
The Department has a/so recently proposed regulations that would require additional data disclos ure to
prospective students. For example, certain non-degree and educational and training programs as
mentioned above, which are eligible to receive Federal student aid for their students if they prepare those
students for "gainful employment in a recognized occupation, " would be required to disclose their former
students' student loan repayment rates and debt-to-income ratios.
Here's how the stocks are doing :
APOL is off $1.51 , or 3. 7%, at $38.95;
DV is $2.43, or 5.4%, at $42.85;
LOPE i~ down $.1.29, or 7.4%, at $16.24;
Career Educ ation (GECb) is dow n E)6 cents, or 3.4%, at $1 8.93;
Corinthian Colleges (COCO) is off 30 cents, or 4 _3%, at $6.72;
Bridgepoint Education (BPI} is down 84 cents, or 6%, at $13 . 51 ~
Strayer Education (STRA) is off$9.25, or 4.4%, at $200.55;
Lincoln Educational Services (LING) is down $1.01, or almost 8%, at $12.13;
Americ an Public Education (APEI) is d own 88 cents, or 3.4%, at $24.75;
http :1/blogs.barrens. com/stockstowatchtoday/20 10/08/13/for-profit-trouble-ahead-doe-letter-to-senharkin/?mod=rss BOLBiog

... . .. ... .. - - - - - - ::
-

4<>

...:......~--=. -======-...=...- - .: =:=

--

~========-=-'~'7.'

Sellers, Fred
From:
Sent:
To:

Babel, Tom (Tbabel@devry.com]

Tuesday, January 25, 2011 9:49AM
Sellers, Fred
Duncan, Patricia
State authorization

Cc:
Subject:

Happy New Year Fred. I'm sure life is keeping you busy. As we work to update our policies and processes to meet the
new regulatory requirements, we have identified a number of questions in the various areas. Some of those questions
pertain to the new requirements related to state author-ization. With campuses in more than half of the states and online students resident in all states, we have diligently sought approval for our programs in all states for many years,
including adhering to any consumer requirements incumbent with operating in those states. A number of state licensing
or authorizing agencies have specific consumer protection rules and procedures in place for addressing student
complaints: Some require the regulated institution to disclose the agency's contact information, for example:
This institution is licensed by the Nevada Commission on Postsecondary Education. Inquiries concerning
the standards or school compliance
may be directed to the commission at [address] [phone][URL]

But some have no such requirement. If a state does not have a published mechanism in place for addressing student
complaints, would the spirit of the requirement be met by publication of the state agency's contact informat ion or that
of the state's attorney general? Or will states that don't currently have or:'e be requir~d to implement a mechanism to
review and act on student complaints? What should institutions do to substantiate compliance in the interim?
Thanks, I appreciate your assistance with these questions. If these are questions that will be answered through the
pending Dear Colleague Letter rather than directly, I would appreciate you letting me know that and we will patiently
await.

Tom
Thomas Babel
Vice President
Regulatory Affairs
OeVry Inc.
3005 Highland Parkway
Downers Grove, IL 60515
p: 630.515.3133

f: 630.353.9903
e: tbabel@devry.edu
www.devrv.edu

. . ---:...::-:--:.-..:: .. :-:-:~---- - -7-

....

- .....

.:.:- :.:--::::-~---

Sellers, Fred
From:
Sent:
To:
Subject :

Carrianne Howard {
yahoo.com]
Thursday, September 09, 2010 2:34PM
Sellers, Fred
RE: Regarding Gainful Employment- From www.sueainow.com

Thanks,
It has been sent/posted, Hopefully something will we done to change this fraud.
carrianne Howard
www.sueainow.com

---On Wed, 9/8/10, Sellers, Fred <Fred.SeUers@#d.gov> wrote:

From: Sellers, Fred <Fred.Sellers@ed.gov>
Subject: RE: Regarding Gainful Employment- From www.sueainow.com
To: "Carrirume Howard" <howardcarrianne@yahoo.com>
Cc: "Kolotos, John" <John.Kolotos@ed.gov>
Date: Wednesday, September 8, 2010, 12:21 PM
You can attach your petition as .a PDF file and it will not be subject to the 2000 character limit. There is a size
limit on attachments (10MB? Not sure of exact limit) so you may break it up into 2 or 3 PDFs and submit
each section attached to a separate comment posting.

Alternatively, you can send a hard copy but It must be received prior to the close of business tomorrow,
Thursday, September 9, at the address to Jessica Finkel .in my earlier email.

Hope this helps.

Fred Sellers

From: Carrianne Howard [mailto:

yahoo.com)
Sent: Tuesday, September 07, 2010 9:08PM
To: Sellers, Fred
Subject: RE: Regarding Gainful Employment - From www.sueainow.com

I.

Mr. Fred Sellers,

We were not awrue of this until 'now, when you recently sent us this email. How can I send this entire email
1

petition when there is a limit in 2000 characters in the email on the website www.regulations.gov? That's not
fair and,.~~.f,a~s~~g_~,h~n~~~..!P~~P,~5~~Y. not allowing students' vo~ces of wrong_ doing to be heard. 'f~E.R.E
IS CRIMINAL~CTI:ON: ['.t:-YKJNQ~,t-hO~. I refer you to our webstte www.sueamow.com . For the record I
have 180 signatures and counting and we can substaciate our claim from~ matter of record and statement made
by multiple students. This is wrong! Some arrc:U1gement must be made in order to alleviate this problem. I' will
be expecting your response promptly. If I am not heard I will take the next necessary steps to bring this
infraction to the public's attention, as I have done with my media coverage with Bloomberg-Business Weekly
and multiple news stations.
One of your staff members told me by phone 917/2010 that it was possible to contact you regarding this matter
via your email. I am extremely concerned that you will allow this type of action committed by for-profit
schools and their investing parties; I hope that's not what you're doing. This is EXTREMELY URGENT. I need
contact immediately.
Misappropriation of regulation is just one of the factors we are dealing with here.' I hope that yo~ are not
involved with this EDMC/Goldman Sachs mess also! We know that there are people in the government such as
Senator Snowy and a few other high end government officials that are deeply involved with EDMC, and
Goldman Sachs workings! We hope that the Department of Education is not involved as well.

Signed Concerned Students and petitioners,

Carrianne Howard
aka the "Goldman Sachs Stripper" "EDMC stripper" "Art In~titute stripper" via internet and news coverage:
http://www. bloomberg.com/news/20 10-08-05/stripper-s-college-degree-profi table-for-goldman-fmds-70-000was-wasted.html
. CNN News, ABC News, CBS, Colbert Report, Kotaku.com, DigitalJournal.com, and many more.
James Hebert disabled student

---On Tue, 917/10, Sellers, Fred <Fred.Sellers@ed.gov> wrote:

.i

From: Sellers, Fred <Fred.Sellers@ed.gov>

.
Subject: RE: Regarding Gainful Employment - From www.sueainow.com
To: "Carrianne Howard"
.com>
Cc: "Kolotos, John" <John.Kolotos@ed.gov>
Date: Tuesday, September 7, 2010,8:32 PM

Thank you for contacting us regarding the Department's Notice of Proposed Rulemaking (NPRlvf) on Program
lt;ltegrity: Gainful Employment, which was published for public comment in the Federal Register on July 26,
2010. From July 26th through September 9th, members of the public may submit comments on our proposals in
the NPR.i\1. In order for your comment to be considered, you must submh it through
http://www.regulations.gov or by mail, commercial delivery, or hand delivery in accordance with the
2

---:..:. =:-. - -.

--

..___ __:;::=::-- -:::-

--=-" 7 : . - -

:::.:-_:;-:7"- --

.. . .... . instructions in the NPRM. We are not accepting nor will we consider comments submitted by e-mail, facsimile,
or any method other than those described in the NPR.t\.1.

For your reference, we provide below the instructions from the NPRM for submitting comments:

Submit your conunents through the Federal eRulcmaking Portal or via postal mail, commercial delivery, or
hand delivery. We will ~ot accept-comments by fax or by e-mail. Please submit your comments only ~:me time,
in order to ensure that we do not receive duplicate copies. In addition, please include the Docket ID at the top
of your comments.

Federal eRulemaking Portal. Go to http://www.regulations.gov to submit your comments

electronically. Information on using Regulations.gov, including instructions for accessing agency documents,
submitting comments, and viewing the docket, is available on the site under "How To Use This Site."

Postal Mail, Commercial Delivery, or Hand Delivery. If yo~ mail or deliver. your comments about
these proposed regulations, address them to .T~ssica Finkel, U.S. Department ofEducation, 1990 K Street, NW.,
room 8031 , Washington, DC 20006-8502.

''i

Privacy Note: The Department's policy for comments received from members of the public (including those
comments submitted by mail, commercial delivery, or hand delivery) is to make these subririssions available for
public viewing in their entirety on the Federal eRulemaking Portal at www.regulations.gov. Therefore,
commenters should be careful to include in their comments-only information that they wish to make publicly
available OQ. the Internet.

Fred Sellers

From: Carrianne Howard [mailto:@yahoo.com]

Sent: Tuesday, September 07, 2~

To: Sellers, Fred

Cc: Kolotos, John
Subject: Regarding Gainful Employment - From www.sueainow.com

To the Department of Education,

3

! ..
. -.. -.... -.. -

This rebuttal is in response to the actions of E.D.M.C. and Goldman Sachs arid their acting constituents' . The
www.sueainow.com group of students has been recently informed about a grass root campaigning group called D.C.I.
Using (Astroturf~ing or undermining Methods to prevent results in this extremely important matter) we understand they
have been hired by E.D.M.C. to lobby and oppose, the up and coming ruling on gainful employment.

From what we understand, this ruling will help regulate for profit schools, and curve education fraud throughout the Us.
This is .a necessary and much needed action, along with the enforcement, of proper accreditation that will provide
.students with a valuable education and a valid degree certification that is transferable to ~II levels of. higher education.

It has also recently come to our attention that these schools and some of their students clai_
m that low income participants
will be harmed in their matriculation process from this up and coming government action. We find this to be utterly and
ridiculously false data. Students from all walks of life can participate in accredited colleges, city and State, for 2 times less,
then these for profit schools will charge for a so called education. At least these well staffed.and established schools will
provide credible usable and transferable degrees that are accepted by universities and industry .

. Furthermore, we can see the potential for breach in US. Home Land Security, we feel these for profrt schools are loosely
regulated and pose a threat to US. Citizens. due to faulty administrative enrollment and unregulated immigration
process.

We are providing a list and comments from member students from all across the US. that have been brutally harmed, by
the methods of for profit schools. such as the Art Institutes. We are gathering many petitioners to present the US. Dept of
Education the need for such regulation.

In this response, is written testimony of the events that .students have encountered while engaged in these for profit
programs. We think it is a necessary involvement in order to show their side .of the story.

If something is not done to protect the interest of students and their investments, we feel that. the future of the education
system in this country will be harmed down to the very fabric of our United States economy. And with this in mind, it would
also damage the outcome of future students and their deep rooted interest in the education system. We also believe that,
.if this problem is not corrected and contained, a mass majority of students will no longer have the drive, or want to
participate in college for higher education purposes and will perceive higher education as a sc;am in the present future.
Below are comments that have been posted on www.sueainow:com ; I am sure it is necessary to hear their pleas for
justice.

James Hebert, a high functioning autistic, repotted these offenses to the Department of Education about 4 years ago;
maybe you wi_ll listen to hundreds of student across the USA.

..... ....::- -;;--

.. . ----- :..-._:;::.:::.~-- :.:.:-:-:::.-:.-

--

..... _: _-::-::::

......

-..:.:.--.

The Undersigned,

Issuer: Students c/o Carrianne Howard

~~~IID~!_#,~tP-f~ .aft~ J~bfil:m_e ~~~icaO:he.~-?tifie~f ori-o:ur :c#li~bh~~;;(p~st~~:.f~em~.$19ilEii:S};8Eitifl:6ners-coAtaaj-tritormatiot:i

~ill ~~:P.f.O'lli'I~~E.@~n~-f.c$~Gl~~e~:

-Rachel

I got my associates at the ai of pittsburgh, and now I'm at ai of philadelphia finishing my bachelors. This place is a bunch
of bullsht.

I am so glad that we got this site up.

For anybody tl1at can hear us, please help t.is!
I want to see justice for the students and their families that have been hurt by the Art Institutes and the EDMC. I've 1J1et
many students and heard so many sad countless stories about this ~chool.
No body deseNes to be gipped in an education, and then be forced to pay it back (especially when they can't afford it).
I hope that The United States of America Government realizes how big of an issue higher education fraud is and takes
action before it's too late.
Thank you for allowing my voice to be heard!
Carrianne Howard

-Allan

This EDMC is a vef)i questionable Corp. I feel that they are really hurting students, and needs to be ?topped.

-Jennifer

I have a slew of people who can definitely vouch for the horrendous conditions of the .dorms. Mold was a big factor.

-Steven

The Art Institute of Fort Lauderdale did a horrible job in offering assistance in helping me find a job. I had to wait tables
for two years while workjng on my portfolio at night before I was able to finally get a job in the game industry. In addition,
my peers and I had to teach each other during the last year of college because all the teachers were five years behind
what the industry considers normal standards for being able to get a job.

Abraham

Agree with this article

..Jules

As a former student who dropped out, I can say with utmost certainty that Ai is a massively overpriced loan farming racket
with low educational standards that indeed manipulatively preys on young people's dreams of making something of
themselves. It should not be allowed to go unpunished.

-Michelle

I attended the Art Institute of San Diego, San Francisco, and Portland between Fall 2002 and Spring 2007. I feel very
strongly that they took advantage of me and I am now in a position where I cannot finish my degree at Portland State or
obtain any more federal loans because I have exceeded my limit due to the Art Institute's abuse. I wish there was
something that could be done.

-Jennifer

I did not receive the guidance or education that I paid for.... / have had to finish my degree at south university and I am
now at aggregate with my loans and have to pay out of pocket.

-Isaac

To whom it may concern:

6

Thank you for putting this petition together. I have felt wronged by the Art Institute ever since I graduated back in 2001. 1
l1ave an associates in video production and graduated with a 3. 6 gpa. I was told that the school had top performing
internships and upon completion of program had superior job placement. I found both of these claims to be false. In fact,
the only way I could find decent employment in the industry was to remove any evidence of my graduating from At from
my resume and inteNiews. Often employers would rather hire someone who had no prior experience than someone
taught inefficiently or incorrectly. They found it a waste of time and company effort to retrain someone. I moved from FL to
CA in hopes that maybe it was just the market I was in. Unfortunately that is not true, since the AI name is mudd out here
too. Now I work for an insurance firm to pay for the debt I accrued while i was pursuing my AI degree. Looking back, AI
was a waste of time and money. Time being the worst of it, because of what I lost and what I continue to lose as I pay oft
my debt in a job that was not what 1saw for myself a decade ago.

-Daniel

I am on board and if there is ANYTHING 1can do to assist please let me know:)

-Tyler

I attended the Art Institute of Fort Lauderdale, as a Video Production major. The equipment I was using at my home were
more powerful than the stuff at school, teachers were lacking in knowledge. The school itself did not properly prepare me
to enter the very competitive field that i had chosen

- -- :.~ .. .

- .

- -- ,',,,::. -~ :roo::'" oo

"

- ..- ......-

oil

Ttie' ~overnm~rtt know :Seizinf}. my tax:retarii$:bedlu~e .o~fm~~ttid,ent loans forth.e .Art Jnstitut~ that I ha.ve ~ot beift

to pay .for.

ab'!e

-Deborah

The Student Advisor gave the wrong information to.my daughter preventing her from graduating on time; she was forced
to drop out because funds were no longer available for her to go to school an extra semester.

~~ =__ ~~liil;ef;ft-~-=;;: :~~~~~::!~~ :i~!fl~{: ~ !Iii~ili:~is ~f~~f~i:JJI~~~ti i ~~~-i0_~ ~If ~;!~i~ ~:.f ~--~~r~;~ :~: ;;'~~- :;3 :.~Jl{f~~:}~~;t:;r~~i!~~:>~JJt[~~~~~s;~)=fi~:~f!JJ;~~~~

-Kay/a

I attend the art institute of atlanta. it is complete BULLSH*T.

I am over 100k in debt and lack 314 of the skills I NEED. I am about to graduate with AA (I ran out of money and couldn't
get a BFA) And I am having to TEACH MYSELF WHAT I NEED TO KNOW.

~~--'---- :....:c.;..
....:.:.;...:;____:_:_:
----;--

:----...:.__-- - - ' - - - ' - -- - - ' - - ...;;__:_...;;::::_;___,_.....::...:...- ' - - --'--.:::.....

-

..:.=--=
... -=-----~~~--=--

I am so stressed, depressed and miserable. !lost my job because /lacked very important skills required to do the job, and
the school didn't teach it. Why did I pay them over $100,000 and get only half of a degree?

-Michele

f was scammed by this horrible Hschool," and I don't want to see others go through the pain, stress and frustration I am
currently going through.

I went to this "school's" online division. I was promised full financial aid to pay for my education. I was told I was
receiving a quality education and that my credits would transfer. What I received was none of those, and now I have been
kicked out of the school, have a $3000 bill for tuition, when I had financial aid, no diploma, _
iii:'{ t(ao~P;rrW;~ji:{~jJ~. (9~lat
fumy~it_R,~!~g!i~. and I have to pay back a $20,000 balance to Sallie Mae.

This "school" needs to be stopped! I will do whatever I can to put an end to this fraud of a "school!"

-Ch ristoph er

l_~a':'e bef!_n, vy_aitf'!fl fo~.fl:C!'!J.~!~jng likf!. ~t}_is_~~n.ce the f'!~~ q~y t~ey r.ais~? tujtion[jft~': i bega'!_ t_
r}r e_ducation. tfiiii~f!J.'flfflt.sj
p'i3rff;rtjjy:fifoii_ej~ac'f(-:p~_as~i~~@.w;ror';"fiffii.i@Jhat~Waktngil:-frn11iO!di9!taf.S'pJ;fi?Jff;?:f.;i#!C!?illt~~t~.-.ai:ftld~ Where did it go
because they don't pay the staff that much and I sure as hell haven't seen it exercised in the school budget?

-Pedro

was told i needed to have a loan to go to their school. event though i was going to use my gi bill benifits. was rushed into
classes i didnot need and when i failed a course it dropped me below the amount of credits needed for finacial aid to
cover expenses. two years later and im still in debt to sally mae for loans and classes i did not need.

-Gabriela

"GRADUATED" FROM AI OF FORT LAUDERDALE WITH A BACHELOR "DEGREE" OF GRAPHIC DESIGN THAT IS
woRTH NOTHING. :~ ~~:titti~G;~~tfi-:fAI?Ec~~iEQR::::i\;;~frtlfA;~::'A~r;.r.:Al){.j;g;t:Jp;_::wA~:~'t:Ql,t'fjj,:;nHi&'T,~;J:i.S.'(;)RefS~ff:iffyS'l
'fi];.__rf)G-&1z~~-t~ THis fiA's
Lof.4 Lo'T oF iV1of.Jv Fof<'Ji.8soLufEL'Y'i\ib'THJNG~rRiR
/S TO HAVE YOU "IN AND OUT" AS SOON AS POSSIBLE WITH THEIR 3 MONTH CLASSES AND RIP YOU OFF AS
MUCH AS POSSIBLE. iJWA-S~~Rtt&fl~1tJP..:JA~0~0i;3,i~~j~TdiRAitM;4.iJ1fli$ THA T THEY ARE REALLY GOOD AT IT AND
GOT NOTHING. I AM NOW A YEAR GRADUATED AND STfLL HAVEN'T EVEN RECEIVED THE NDIPLOMA" BECAUSE

cosfA1iA"tcft'A

PLAN

u?.~~___rytg.ry~Y:..Jf!~Y. T~~ -r X,Qt.L~~~--~9l.I1!N.~ ~L~_o_ ~E!pR ~C?.~ouA T!~C?/ J;~e~~r~~cr.(~JP.~r~e

;W,::f:.{fl'!1P.;:Jt..:'.#/f!fl.~1Jif.!Nflfllf!rf.l;1f!,c;f:1E11).9[tiif:_fr.I.El~~4~~P,$~i4'B.~F:.J?'-$7IWJ:l~Nf;!r.Hlf1l~~J;.~:.i~.R7.\"!l!J~'J;INt;qi~il.@ifi
'R~&J:r$ME(1.'J!Ijg]J:i~~:fit~"~::; THIS $75K DEGREE CAN'T EVEN ASSIST ME AFTER HAVING LEFT THERE A YEAR?

THIS IS NOT RECOGNiZABLE? NOT TRANSFERABLE? THIS SHOULD NOT EXIST.. .!!! I FEEL BAD FOR ANYONE
THAT MIGHT GO THERE OR IS GOING THERE, THEY ARE JUST THROWING AWAY MONEY AND WASTfNG TIME.
THIS HAS HURT ME BADLY, TO THE POINT THAT I AM STARTING A DEGREE AGAIN TO CONTINUE ON
EVENTUALLY WITH A MASTERS. -~:~iJ&tfft.!l.{filf.0l{jj;i[
_ \l~ ~fi1:_~,,~1~E!'K~~WiNGj'tJil.~tA~kfkVti:AWQrlf~~QW(J:f91t-4?,L:6t
P.~?3R1Jilff":TQ r(j_(}ff.[FJ&_I..(~WifHEfQ.t)pA'tiO"fJ... 3. 5 YEARS OF MY LIFE AND $75K LOST AND NOT RECOGNIZABLE,
STILL IN DEBT WITH LOANS...

-Damian

at about $150,000.00 in dept

Struggling to even get any kind of work.

-Sergio

I have been done wrong. I want justice!

-Richard

frm the employers and students.. This school is such a rip off and needs to be punished for it. I'm over $40k in debt and
~~tfft~~~.:~~~{if!~rttti?~i~-~~tx~1#Yt?_t~?~Won:J~1~ny ~Jt!Cff~e!Y.~fiia{m- J1ifiififi#it0Yfiiiir.ttJ!.trPii~ill~ift;Jti$.pian~fl}TJ..~~~~sfol
~ffi!fil~i'!~r@n.fi~f?.tiJ#ff.C'k~ta;!fir,r.'i:':JIJJ:iJiJpymJ~iflilts~?J~ ~RWn. af/d t would do any and everythmg to gam back my t1me and
money i'm due. No matter how much of a great student or poor student i was. What can i do to help and what can we do
to sue these b *st*rds ...

-Lindsay

Th~..~.~ ~n~j!~t? -~'-f.!t~~-b~!JJ.t(~~edu?._~~~~!!!3~~~~e'!!J~-~ big ~a~t~_ ~: tiiJI~Joc ~ !_~!..?Lf!!()J!!!Y.- th!~g.tfi~H~t~~!~~j?i~(.tJir~

~r.rf-:~fff!(.:f.l!..U...~!!f~'ef;lo/.:.'il'iC!.iJf!nJ;[:JV..(!J.e.H!]tefd.$.~['~*!dt.J~fltft.geJ Per~ers, ;arifJ:~.Uff[J'Qyg _tgjay:-P.!_ci(JP?fW9.~.-1!.$:fQ~!JQQtqf

l!JiJfi.iii~e[ri~ftf.~'g['~:Ei$'). The entire school is incompetent and I regret going there ~~,q;~~~~!!~flJ!1C?P~Y ()'!. .~~ ~.cfu,c~.~!C!J! .that
has no promise beyond doing some stingy client's entire website for $10. S6J:ff1!.(~itigl'!h'fre'~S.t:tex!#,e~l ({V@lf.e:::rali6't1~:j,.lf
.' e
'~Jigppv:e!~@.ti9;~l!ieJ~J3iJ~9~~-,rfplo'M$~Iu~V~Jalt{iif.~theJ;:W.~1Jets;;

... "'.

.......

- - "'" ----- ...

-XXXX

Just a thought. but there are a lot of x-emloyees who would sign this too. You ~hould add a category.

~Richard

-10

;;;..::.;..;---'"

==::;_;~..:....:..

-..-... --

At ii)itialsJgnlng; in't:emships and job placements ware promised, howev_er, this bas.coine-to: be pmv.~ri a lie. What 'ha$
accfua_IJY..-h,afJPf;~i{~~ js,.,e'c?:ft]in~ . vpon graduation, students are told they me:erf to .~'fjn(l a j o/)Jhat "Bc_c.epts,yol:l .crs ~n intem
?rti{ i(.tl;!f}Afthq~f.~~/6.pli()'fl~.f!. p! thei:n-then Ws {;lcc~pted:" If the,$c;;/wol .i;l(j~S not: :i/~~pt s:;ilr;J,Jntems{J/P,:tber:i. :~p.;ar:e.~ nf)J
allow..?i;J3(:l ~gr'adti$Jit." Also, there are charges that seem to be unreasonable. An example of this is the "kitchen fee"
charged to the culinary arts students. Said fee is to pay for usage of.equipment and food prepared, however students are
not allowed to take the food that they prepare and pay for. The students are told to throw the food away because of a
"liability." Finally, the syllabus tend to change constantly because the head chefs state that certain information is
unneccessary because students are only going for a "standard" education, not to get an edge on the industry. This in
turns causes the teaching chefs' hands to be tied from helping their students get the extra edge needed to be successful
in the Art industry. How fair is this?

-Kibra

This school took a year from my life and thousands of dollars un_der the pretenses that I would get education and
knowledge from their institution. Instead I recieved a huge unnecessary bill, very rude teachers, teachers that STOLE
information/presentations from other universities and credits that won't transfer anywhere. What they do and stand for is
illegal, unethical and morally wrong.

-Tyler
11

Not happy with living/dorm arrangements

-Shannon

Too much to-be said.

-Luigi

Please Check out the vampire sku{{ project I was failed on (Luigi Tafliere ) on facebook.
horrifying. Trost me.

My expirience with AlP was

-Harlan

The AI needs to be exposed for what the truly are.

!~?qli~t~er#!iJlf~9.~-Hii~ by' 2<?J?~ri;_iras: tolq~~.Y .-~~~-~oi~g~ .1 :~pP.iflfft~~tff?Xi!iff;I;!i~1:S!:.iifit.;.a,9e.(fP.,t~~fi3tcH~'ti1:thfi' fo~n

f!#!.~~m.e~f.:Jfll!f: tlfe.:V..ef.pi~ge in :.t fiif:6a:telog$/g9_ihg' as ~liiliiJ.~e/f; a~~:f-996' to~iim~i;f!jf.'f3'IX~ii~~~{i! .l:i.if:~g(iJ!ii$edJo~e,~=:wlfsttii
~1}t~'#:firi<litJf~hilFri~~i--i;il ~ontr.adi~tions, : ar:SZJ.:~wn?.i?; 1~/.gru_(ies .g"fi: i,o)ii /i:w.Yetil.iifif!Y:fiJ(iill:Jilii~npfi.fr'llff'F~#.;fJ'iii/Jl@xee.: ().f'th~
12

schooNhat re'butts much of what they state in the catalogs and advel.tlsements~x/iJring the w~ek emaif

me *@*.com

-Tenel/e

Please contact me! I we.nt to the Art Institute of. Las Vegas and I have multiple complaints. I graduated with a degree in
udigital media production" and I have 90k in student loan debt, /teamed NOTHING from this school. I haven't landed one
job . based having this phony looking degree, only thru my self taught and previous JOB experience and now that I am
ready to go back to school for a masters and do psychology, I found out these credits do NOT transfer!!!!! I read the b/ogs,
please contact me, I have about 10 to 15 other classmates and/or graduates with the same complaints .. f!!!fl t want to SUE
and im SERIOUS!!!

-Anabel

My only regre_t in life, so far, is attending this school!

-Jonathan

im personally getting ripped off and lied to by the art institute of /as vegas and the edmc. i am starting to fee/like going to

college was the worst decision i have made in my life! lm down for your cause! you h~ve my support!

-Elliot

Feel free to reach me for comments, but overpriced, misleading, and crooked.

13

.. . ... .:....- - : . ..

. : :
.

------. ----- --- -

-- . ..

. ..-..
.. ..

...

-Jennifer

Due to the interest with my loans from this scam institution, I will end up paying $140,000 on a degree that wassupposed
to cost me $55,000. I would have made more money not going to school at all, and I would not be six figures in debt
besides. There is.no industry in this country to support this education, and nobody I went to school with is employed in
this field. The loan company wants me to pay several times more a month than I currently bring in, and in fact, I am back
in sc_hool again for .someth[ng that makes_mq_re_~~f!nse - crimiJ]a!ji!s.fi~.- ~m a. ful~ SC?!?91ars~ip, besides! . l;p~n~o.H~l=HU)ne
fltliJ:g,: i~a~taWY: lt/(frll~d tr~m AI.,:be_$.i.ctfJ.f.l1awtrf nrit tre~tjjijJ)J:?!~~ ~~9-Wtnstlfl!.1(qils g~nnt?ay Wltff i;rfirJ~ qtf~: .a.atly'ba!~; :BrJ.d
'{u:iwl6.~sill nf y sfjtil ;l~ Afgn(f.StilU~/JW~~'; I am 26 years old, still unable even to pay all my bills because of my mistake of
attending this school, and I do not foresee if or when I will ever be able to move out from my parents house.

..

,.,.'";... _'"....... '.

-Robert

Scams and frauds should be stopped in their tracks - not because it is politically expedient but because we have to stop
screwing each other.

-Paul

I graduated from AI New England and would like to be apart of this class action lawsuit

-Courtney

I went to AI Pittsburgh from 2006 until 2009. I even met my husband there. We both hold degrees in Graphic Design,
useless degrees. Neither one of us has been able to find a job in our field and both of us have the debt that is associated
with the Art Institutes. Because of these payments we can't afford to buy a house, have children, get health insurance or
even get off food stamps.

Good luck in bringing the Art Institutes andE.D.M.C. to justice.

14

..

Carrianne, .I attei'fded the Art ln'Stftutes in. P.itisbi.Jr.g/1 :~ ;t#[uiover 10 years .c{go. To make a tong story short, to say I was
mislead is an .understatement. ThiJ informeit:mB;(or.W,tiJ.- mero.n the. fa.r;f that fiJYtolal amount owed after graduation and
m$nthly.paym~Rts would-b~:mueh.!ower, tfj~n.i
: fllW aqf{L~lo/ :W~(e~.~dds1.ipnall}';)~h~f! I originally enrdlffK/ in .the..piqgram it
w.:a$ .c.~llerJ~."'anima.fi.()a;B< .m.uJtirp~c/!,~.:: an.c:t:W,f)~ifA;wa~ :h,iJlfW.ay1!f?fq?Jflb.thf;:pr~tJr.iJ.rp ftW,as $pUt into.t~o sep~r~te:programs.
J'afJimafion11 and ))fuul~ifrlf!dia "; .J,Yt(e_ri)J~~em;tq~~P.~~J<: ;~~~~);..~pqf..r~IE#~'aiA(:$w(t~l1ln(t toju.st: :1riJiJitim.edit/~ I ~was jlJfC!>rmact
~t only one-third. b(:my_;yred!J~: w_~~tii:J.oNiitiiW?!!JCT;fiJ:[~iJg!n',:Y.C}fJ.~f:~.(d ,tl1Qt.c9f!ectly; :ftt.~Y were oli/J willing:Jo;;transfer
:one-~}7ira..
cr~?i.tf-:J?ilf.W'l:~bf?;~~~~s:~.~f!..~R!.~-fmp~s4~f;gr.o,~r~iJi..;tf:,f.s.W.~t<ff?_e.cj. it~ wouJ.ti;./?fl~e :g~Ul'!~ a~r. it.~tjit~on~l

9.f:ff!!-

~~~?P.q:. 'f:tt~a!:pp.!t1i (W/t!Jf!~Y(-;(r~?!f}{J;~[~o/!,f8{~}l~~wJr!;~~i;~!~;!~lf,-1~:f~~,~~~Pt~~-~~fl~/e~a. ~~:qt;-a.niJn:~;,'i(r.g,ffl~::~~;.~.~~

. fqr:lt a,nr.i-:t.M?!>'fJ oo.mpl~t~w.ast8:Qf.t11.Y.1fmrr~;~'tJl?..fg{:if.;~~qt1l_e~fmfi!.rt~K~~A6/.~JJ:r;c;nm.:ttP,; f/?ttan . .:. : = =

. .

: . : ,,-;

~:'

_:.-, ;;. :::: _::

-Rizzi

I am a former student at The Art Institute of California - San Diego and I agree with this petition. I feel I have been
wronged by the school's financial system and am signing this petition in hopes that it brings change.

-Nicole

The are liars, I went to school their and worked for them. I should know. Ask anyone who has graduated from this school
over the past 10 years. They are misappropriating federal funds for their own benefit and leaving us to pay the pala nee.

-Sean

Totaffy ripped off going to AI Houston.

Classes started well enbugh early on, with apparently teachers who were doing more than their job required, but the late
teachers were piss-poor, didn't know the technology, didn't have any tips, and could help in no way. Not to mention lheir
artwork was worth than some mediocre AI graduates.

Such a waste of $70,000 here as well.

-Daniel

As someone who plan to team art when they are older

i got to sign to ~his petition

15

-Karinza

I attended the Art Institute of Tampa for Game Art .& Design and am now 60k+ in debt with student loans. I left early to
avoid further debt from an education that seemed increasingly. costly, ineffective. and potentially harmful to my future
prospects in the video game in_d ustry l .. &iitir~:;r.q;t.AJ;i9f;~t~mpil- :vrith.:f:Wpf'S'Cb(!J/af$flips; '9(19 . of which
~n;~awa(aeil

was

:schot~s:ff.q:+f.l!~,~~l.~e;fiK~Y:(~~~~mfo/;~r:~~ri~ ..---7J!1lh~;tr,~w~titl(~cn9J~r~Nfis:t~;9~~->cho@.tt"fl?P$:. -~b.) tf.rat w~~-~'R~~tt~~~~

to ;be ~~c9fiP~~~:?n. :me1i.:~O.t~WtiE!!~~:. l:!P.9.1:U~rrr jj~~$-t9.lcr! Uf'!~Y;IJaa.: nf:i.; khf!WT~t1J1~'of- w~<Jt th'tf.;$~h~!a:su~ .:si1~~hK~1d~>~~n~
wa~si~.P~?t~~!Y::&~d~~~~Yiw~f.~~~~J~:~bi:J/1__ ~,~- -~;j~f.qri?J~!J~i,~~:J{.ifa}?t~~~q~k~.f~lciltiQsPi CJfJtHsimis: 6:ace~~fioo~:t~e1r
gwdance and_-terms~1!).f: pa-y17J~!lli:-mJ?: 8[117eF.,-m~Y;:-s,pfio_la_t~f!!P.7W8S. a/JoliY~ct19' ;expire:.: I spent two years there completmg

required general education courses before it is allowed to take classes focusing on my major. During my time there, I was
hired as a student worker and observed financial aid officers joking about student financial troubles and avoiding/criticizing
students; Admissions Reps complaining often about the recruitment quota they had to fill; staff behaving unprofessionally
and speaking derogatorily of others. Classes were characteristically-superficial-and rushed. One class subject was taught
by a non-specialist professor playing You Tube videos. Other students typically lacked prerequisite artistic skills/knowledge
(e.g., anatomy, analysis of depth, hand control/coordination) and mysteriously passed on to proceeding courses. During
my time there, I lived under student housin which consisted of 4 individuals sharing a modest 2-bedroom apartment.

~oii~Wffi-rfP7~$.iWi#ii/fi4tlt&!.9~1l1:~P.~n~tt.ri.

~~HM~~t~~tf~~~l/l(f).st~'fr~~~~~f~~d.ticl~~:~:q&~:siJY..~~i().r;$.1;,v.rnlMiiiW6.!~51t

~d{;Jfi(j.f~Jq:l)tlf!Jf.:;m'fJ.T1ifi?il!1~1[?J!i~JAihjj{"
Z#i!.~ Upon completing 2 yeats and leaving the. school, I was instructed to
seek the signatures of over a handful administrators before J cou.fd leave, whereupon I was informed that leaving after 2
years did not give me an Associate's degree, and :cili_(4lfi.:_i_ijiijf:?ftf,ap~tLtr. I hope that by signing this petitio!), others may
be educated on the potential risks and avoid losing so much due to the practices of The Art Institutes.

-Salva d or

I am a student that has been attending the school for about six years due to complications. I came for animation at the
Fort Lauderdale school in 2004, except /left after 2 years due to not being satisfied with the scheduling system of quarters
but when I tired to gb to other schools, they would only accept 10 or 5 credits out of the total amount I had. After many
tries, I decided to return to AIFL for Graphic Design but decided to go back to animation later on. As I got further into it,
the major downside was that the animation field was a/so very disorganized since the school was trying to teach every
aspect ofit while expecting the students to be good at everything instead of branching it out based on the specialties the
students want to work with so they can learn that specialty to the fu/l.est potential. I am currently close to graduation now,
. how~ver the expec!C!!!9~~ie_guf!;~fo~/-~~-w af!!,_a ~!!}E!.,~~jq_I}_.~O.f!!P~'.~.~~_Jh,e, l!_X.f?.t:.c;.t!!!!?n~.!h~_tw~~~/~"'q!!~~~ (C<?!J:!.~.~

pre_'(!~.l.!~_91~~~~;.~ft,~O~~:Jffi~l!~!r~,qf!1.

;f.~~~4J11~:t<:>:qe~ Ml~tlaug/f~JIJC~-'!FJ.R:re9Y~~iJrstetW;<it~?!-ll!OO

wh"a~t!i!!Y. T?e'f:J;itr;;t{:f,e;;~f!![12Qf~!lftifr[tgrj;t lh~~= ..- ...!~ I wish ev_eryone the best that th1s pet1llon makes it through so that the

students who suffered can be redeemed.

-Nels on

I am currently a student at Art Institute of Fort lauderdale studying For a Bach. of science in Film, and believe

l'v~ been a
victim of Gestapo recruiting tactics and bait and switch when it comes to announcing accreditation when being asked. t
am Glad to here that some one has taken the lead and would be very glad to participate and see that justice will prevail.
Thank you Very much

-Jared

Failed an assignment in which the ruberic added up to a total of 175 pts. when the total grade possible was 100. Felt the
teachers were insufficient and not properly trained. Withdrew f]affway through my course program due to insufficient
training from my program leaders.

16

-Jamel

I owe The Art Institute of Fort Lauderdale more than $110,000, and I feel like they deserve none of it. My education there
was inconsistent, and nonprofessional. I either learned from classmates, tutorials, or learned from myself for the vast
m<;~jority of Game Art and Designing techniques. I realized what a mistake choosing that school was all too late, and don 't
feel/ should be in debt because of a Jess than decent education.

-Sean

i was black balled out of the school through a lousy teacher whom actually said in words to another teacher that i shouldn't
be able to pass, The school kicked me out cause of gpa "which was all due to that class and the stress of having to redo
that class and refused to let me go back "even tho i know others in the same boat who actually continued" lm am now
stuck with over 100 grand in debt, _and have been slowly climbing back up. trying for a job in flash animation, i have
learned more in 3 days by a professional then i have ~ver learned in an entire quarter at the art institute.

-Steven

lve been ranting and raging about The Art Institute business motives for some time now. It just a business. They are the
kings of marketing and selling. They went after people with a passion for art, design, eel. and sold them a dream. At 1...8,
{ooking ~'!!. dir~ctic;?n_if!_!!!f!.! y_o_u don't ~!!'!..."'! _any ~etter. gfl}Ff:l.ii!-"'fho~i,:Jf_~rsU/I~o.q.J.e,yyilHt:ti;li~prtl'i}Q~~jJ~gpte;y:QU

~l~{~iR9~rij_~T.qf..'E!itq~r~-~r;:y~W4i;l,1cjg_e,(!Joy{~Jii..~rr.g!ffi!1ff~ Yit!;ifQ~c?1-o. c~lrefiff...~r.cifi:~~r~ ;toJd,~'~lE~metijtfl9;'ibu::~ill

!Q'f((~!~~C.~-: ~~t;:

f#.ii ~ ~13kf.~r : staff:~~t!.:m~! ~rl-.liisfiti.lt~~r;mr;q;W:J1fl,ii[ffiWii~ii~~:S&: :~tei:(~~-: }r;. ::_your;:fa~e~ .ah?DiJiV.e . you ::ihbs.e::.f?/ffi;;a~s :;\'this
~~t~h'tag~~~t.:ciu(turt~hi:I#.f.~ ~wifrkli:ig: wtt#!~lfli.~lr!:~~t~~ 1~rly~ th1~: P~rent~g~:,i(i.il.gl1: emif :mac.Je:~it ~~rafintciti~J ~~:,- 9.4i
17

graduai~'S :starl wtm~king -$.60; 000 +. dp/laf$.. Ttt~ .dreartr-. :(hf1"petcent8ges,eot. was a f$-ke ass Scheme for some rich gt:Jy
anCiJth.er fl'i~h~ion;boat; aparim!ln.tcompte:?. ~raticJi.:Jewefry( for fh.ete :gold .digging lov_ets),arKJ.whafe.ver else'the

to get

b*st*rfis;are:iiff~f-':<~ ::.

. . .. :. .

:. --

. .: .

---

If the percentages and lies of the sales scheme was actually true, paying back these loans wouldn't be such a struggle for
graduates.

Tht;J fact is, I bet the graduates who took out these loans would be living a better lifestyle if they didn't go to the Art
Institutes at all.

S.ome people .may not even know what type of business they are really involved with, they just see the mof}ey coming in
and they do what th_e y do without thought

Its like sex, someone gotta get f"cked for someone to get_ off. In this case, most of the art Institute's graduates are the
ones getting f"cked and believe me, I didn't get to go and I'm pissed.

PS: And I am one of the few graduate who actually work somewhat in their field (fu/1-time)and make decent money. I am
not, on the other hand, receiving the dream or the salary that was sold to me when I agreed to take out the loans that are
taking a large portion of my checks and down grading my lifestyle.

But, of course, you cant stand up for what you believe. You cant say f"ck them, I'm not paying because I didnt recieve the
product you sold to me. If you stand up for yourself, they will tum around and smash your credit and then you will never
get anywhere in life.

Everything is a big scheme and sales pitch and if it isn't your scheme or your sales pitch, its prob. not going to work out
best for you.

LOL, yours truly, Steven Ramby.

If the people who represent Art Institutes think what I mention is wrong and would like to rebuttal, I CANT WAIT TO HEAR
FROM THEM. But ,guess what!, I wont because they dont care because they keep seeing those $$$$$ coming in. The
ONLY way to hear the "other side" is to somehow start taking those $$$$ away and then they will start thinking and asking
18

question?

This article is a start and any other bad press they get is a start. Really, if all the Art Institutes graduates put there talent
and time into creating Anti- Art Institutes advertisements and marketing material we could most likely bring their sh*t

business down or at least make them run it honestly.

Lot but its sad we have to use our free time, outside of working and paying loans off, to make a difference.

-Brandon

19

___....:...__ _.:...___ _....:.._,__

___.....___;;...__

..:'-'-".:...___-:,.:._....:;_.:...___

............,.;._.:...___

..;....:....:=-----"-~..
.-'=---.;;;;...;..c;:..;.....;.;.:...__~_;.:...:....._

_,_.- .- - -

..

-i(le

ne~t~~('ip: isth:~M. am)'ldt:WASC accr~~ited whid~ me~s:f c~m.n;f:eve;yei.~:mf;~~r-idegr<Fe:;tom a real s<;;hool.

!.1Hf.i'S:tn.~~f-pltfiii:=iia.a: rl'();)t>t /JernaP.~ : 1or 2.iru~1ifLed. 7n~ttudtdi{irf :t~e..efillrii ~~~i#Ei.JilittD.~ig'n~Wi0gram: fFfle . teachem
W,er~:q~~-n ;4di1Jjgr,~~.t~q:if!-: fbe cotjr$e inaieriaJ; ai}if. fiff~!! :~O.Tkfng.~ijj~~~d~..if!iiifi:;~~~k'f;il/11 . c(a~s. We eJieiJ. had :no
f[,tfp~[tfl}/~lit~Ji~?t~Nf)r. Q,i'(~r[~irt.IPnth.s ik!fit7g.ftiY. cdurs~fotsti,.JI;t><WhJcJr feft~~~~?fg~:fL"i!'g'fflY!ll~f:o/.~ :~iJ/e comr;iJ~. . .

~~P:~t~~:~~tb#,~~@li~t16,:ff_~t!ikWav~;i'l1.0.t~diJrtf1j~l).iP.ta~hi~~{iJ/$.'fi{~~~:~ift~ti.ll!lf!tl!ift~~~~!'i~~:Ji/p_:~1p~gjn~iJ,a[4i:h~lr~: fr.iirtl
th"eJr.-~9.?-t~e.r 'ad,lliQrs_"(o/.t1Qiessenljf!f!YJiad :no;!'ins!" W.itn~ootnp_a'1.~$; an~u~~~~y~(atw-aiilelJ.'itW "a'Utbm,a_1ed'J9~:P:osts tb<!U
Wi:l~alt~fff.C!Y~~igri~?t:l!P!'roiif{V.~-t-.any.lf~Jp. :. ./ ':: .. ~~. ;=
"l?-,. .c : . ;.
<;~:~f~!i~~- :. ::;":5}::~:. :;~~,~~~;:::;: .. > ...

>.

-Christopher

The Art Institutes provided me with nothing but debt. I was promised great resources and an unbeatable education. The
reality was an expensive piece of paper. Worst of all wete the teachers. For each good teacher, there were at least 5
industry flunkies who knew nothing of their craft. The vast majority possessed little or no knowledge or practical skills in
their fields, Many didn't know how to navigate the software that they taught. Very nearly everything I came away from that
school with was earned through countless hours and sleepless nights of self-teaching. The Liberal studies classes were
travesties. Now not only is it useless, but r,a.m. ;~1~ii~:f)..@rt..i~.f.j.~@Y.,:w_M~g(!fjfe~; My family and I are in debt to the tune of
nearly $100, 000... thanks for nothing Art Institutes, you're a terrible place.

The best way to describe the Art Institutes is to call it the "McDonalds of Art Schools"; they're ubiquitous, and you pay far
too much for products that many wouldconsider harmful.

-Juan

. I fee/like the admissions department gave false information and gave unrealistic expectations. I am greatly disappointed
education and the lack of preparation to enter the industry i studied for. The quality of education does not
in the quality
prepare youto eam enough money to pay off the cost of the education.

of

-Katherine

_o:r?_~!h}!!,g,is.Y!f,R.,'( .~ERY wrong at AI Online. I took a class online, received an A, !li~i!~9$t.fffi.i.:F.~~P.irJ~;8}lCJ:l~1i:(me.~;~

'IJ~fl'JQ~r~f~{(e}/:1.~-~la.s,s - then proceeded to charge me for a book voucher for much they sa1d I had not actually recewed -

and in fact charging me more than the book... Through all my dealings with them I was absolutely astonished by what
was going on (lylng, misinformation, bullying, mishandling of money, mishandling of student loan, refusal to transfer
degree from good school etc)- i!!~i~Si-in1h#:W1~~ft!~~fJ./#iHfo.rtl$ii)ffls}s&.i9._~?~

-Kyle

l want my money and my life back! .

20

 -Jacqueline
Hi, I attended the Art Institute of San Francisco CA, and moved across the country to be a part of the new Master's
Pro9~a,m. A~~~~hp~~-mls :phqne~c,8!ls ;I:Wa~e~~e:~JG)J19.Y:e..tg:g6~trg:r.nr~Y;~~$,8~!~~cqn~~;l9-: ra~1_ize :in~t they were not e.veo: r,~9~Y
tp:st~~~t~~:Pt2~'r:af'B( ~~:~;t~-~~ca:~eVf:Y -~~~~[~~~11~ :_q~~~~~~:~~~~~~~I~?n~r~~~: f~t_~~~m :onl~ toftnd. out :t~_at : sor:-r:nn~tUie
pthi:W{~Jlller ~b.Jet:lts: (e~e!Y..~Q. itb~s~. cl~ssesJor;free bee~!!~ :tli'~iPfO.Q.@I.:'(t;'!?~~ri:treq.gy~.
.
When .the program was ready, it was insanely unorganized, alot of the clas'ses where redundant, and similair (not
advanced) to the undergraduate classes. l felt so ripped off, and now l have student loan payments of $1000 dollars a
month! Students can't start there careers like this! Especially in a field that is so hard to get jobs in, it isn't like a doctor
degree where you are much more likely to find some kind of work.

-Nick

Charged so much i could have learned myself, Prey on kids desire to learn

-Christine

1 feel like I overpaid for my education, my housing while in the school, and that recompense should be made. I was lied to

about the optimisation of my education, and at the end of the program, they decided (in my last quarter, with 3 weeks
remaining) that the "Media Arts"-in "Media Arts and Animatior:1" meant computer animation only, when for the 5 years up to
that point it had covered 20 animation and/or (optioflal) 3D animation and more for advertisements, TV, FilmNideo, and
games. I studied for a Bachelor's Degree for 5 years (l had a physical condition that drew out my time) and in the end, due
to a lack of funding and thier ill timing in informing me of the changes and teaching opinion of my work coming late in the
quarter {thys preventing emergency funding _from being gained; which .w0uld not have been enough to re-teach me
anyway) I had to settle for my Associates of Applied Arts instead of the Bachelors I worked for. I am financialy destitute,
underqualified, and in a bind as to how to solve this. I now have to teach myself the right way to do things, remake my
portfolio, and locate work that will. pay my debts in a sane and reasonable maner before December. I am still physicaly ill,
but won't be able to do anything swift about it due to the financial hardship. The Art Institute may be a "for profit
organization", but a bouycot and swift action will show, that bad business doesn't fly. Profit is for those who earn it, not
those who proclaim themselves entitled because money is what they are foundea on. This country is capitalist, and that
means HEALTHY competition in a HEALTHY economy, not fraud in a greedy mindset (particularly not during a
depression.) l know this, and I did not :eci~ve my Business class at all, compliments of bad Art Institute business practice.

@~~~~~~t~~ ~,_a.~~~w~)Jr~;W~i~!~~; ~~if~~ :~,~Jf~(ii~#~~~~~: ~it~ :~*if:~~ ~J~ ;~~fa~~;/~y.~r-Y -~VS,~P,rrtea,: ~~~~~l.thY. ~ Hvuy~ ~~_n{ffi4~b~J.i~
th._~lf:~.pprr:J:l , ' ~<!iea.l;~::wtfq , ~ever:~t{each~r~~

Whom\ ~houtdn'l~~oe qllaltfie.d: f~L teach, ::W.aS :tofd

21

90U~tless hes:abc:>1*:t~eJr

accr.editaU~m. -and now after 1graduate -I'm only gairiyto -be at:>le

had no prior schooling at all.

to get a job paying $1:0 an hour, that's average and a~( if i

~Antony

I am a graduate and have been cheated as well. I would like to help out however I can

=, ;... -

On top of which, I didnt find out until later in my degree that illustration is a freelance gig. You don't really get hired by
anyone. You have to make it your own business.

How can anyone have their own business with

100,000 debt? -

I had always hear9 that if you take out student loans that they ~~~L~e- -~-t -~- ~~~~~~ _rat~..~o P.~I ~~f.~.?,,~~-~ -. 1..~-~':'.E?.P.~Xm,~~ts
that are 800 per month. I may have already defaulted because I~ \M9.J:k:pa~tif11gi~f;qf.ftoe.;~~RQb'1 ;t~'t(;.~m-~J.a.~ng~.Qrff'lt:\~~;m.
While working with a newspaper to get the busine_ss -off the ground.

I always heard you could consolidate loans, or if you have a hard time with your payments you can work with them to
make it easier. But, this information was on the government loans not my private loans. No one informed me that private
l oans were any different until after graduation.

22

---- ..

The Att-1n$tiW~~ :nu:is.t:tae :Stopped. Not~on1y have th~y.-tr-'icked my students into ~igning prtvate high jnterest ~lo'ans. put-tttey
r~fused tq:sjgn/fitl out .Recess~'ry papelw0f';k . &0 .. my' :$t!:Jdef'lts could get low-interest governmen.t loans, . graf-lts, ': t:il'ld .
s~c~olarshim( ~:: .
..
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=
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0

::.,:

F.~_~h~;rt th~-Y.: 6(a!mfa~:tr:~Y -~ere ~db'~~:~~~~<(ts~(~~.-:~-~~.d~t~;~~uJa r~eeiv~ -~Aiss transt~rabte== c.fe.dits a~~ti_,Ai ~iii!:_~r~H~;

~~~:-~OS ~~.T~n~~go~~-~j~j;~~~~~Tt,~~;r_~;.;\1Ji~~~H~:~~::}Uj~!:~~-:-. -.-~=::~ ;: . 0:_: _.:, = -.-=: :_-~

:.=.=. .

0=~<~\=~;~~~{;;;~;~!{:.
..

h1 ;~qgi.~~~-'.: ~#~l~~~Tf:\li'!!~~i P..t~A~~-~,'il~ ;~~$~~'..1~~rt~E~~t~i~~A~,: ~nl{!f.9,Q~~!:!tS.,~b.a.t o)]~ :91'n~~t:lo.t=o~qir~:~~-~j?,~,~~~~;.;,: ~~!

.~~g~~~ ~=+~il~~~e;i:~~~vE~!-:~_2if:;JXiiifiitiu~Hi~i~;:-!:I:IfJt~:::~ .. ~[--: -:>_:_.~::.~ . .

~~ ~<-::/= 0,,: ::_~~::::}jUfJJii15Ji{ii~]i:

-Mukul

Its a shame what private institutes are doing to the dreams of millions ~f aspiring artists.

-Michael

I'm a recent graduate of the Art Institute of Ohio-Cincinnati. While attending Ai, I started to realize how unorganized the
school was. Tflen as I went further I realized how unqualified the teaching .staff .~i3!?;. "t:"~.E:P- re.t;~Hz.~~IJ~.E?. )!~~/~~)'- ~9,1,9. m~
w hen I was visiting the school and how many unkempt promises there were. Tit'~y,'te.- v~wi'Q~:fqg ;~tWJ1~Htli~Y:r~f~$X!~~W.a:Q
y(j~i.f~u~fti91v~:td::jii.sU~1h"hey also censor a lot of your work. I really hope people can find this and become aware of the
dangers of getting involved with the Art Institutes. It can leave you with a LARGE amount of student loans and very
little/no help find ing a job after you graduate {Craigslist job postings).

-Brent

I'm currently attending the Art Institute of Ohio-Cincinnati with a major in Video Production ....AI has done nothing to help
me prepare for the real:-world experience and the education is awful. I feel like' I haven't learned anything relevant to the
television industry (my desired career path). AI has been a complete waste of my time-and money. By far, the biggest
regret I have in niy life was coming to AI.

-Kristina

This is wrong wrong wrong , these students are young and are just getting started in life then are tricked into giving them
money and futures, most will be debt for a very long time if not there whole lives and have nothing to show for it, no job to
pay the debt or support them selves or a family and worse NO self confidence to feel like they can go somewhere in life,
I'm all for the american dream, and making money, but you shouldnt have to steal the dreams and desires of 20 year olds
and there futures to do it!

-Andrew

The Art Institute has seriously ruined my life!

23

-Sara

I graduated from The Art Institute of California- San Diego with a degree in Graphic Design in 2006. I have been working
as a Graphic Designer (fortunately) for the past 3 years. About 2 years ago, I started to look into grad school, thinking that
I'd like to make a career change. ~watf:rP-~~tedly.:tofd ;by eYer:y Regionaliy-apcu.dited sc:;ri:aonhijt;,tll~y;:dfdiil'elft~og~i?~
my:aegree.. l have come "to find that I have to start over completely as a freshmen. I've wasted yearsof my life and
$39,000 for tui~ion . (not includin_g__b~?~s. ~nd _supplie~). J:;~m Cllrr$n~y in my:~egond _.$eiTi~~ler . ~(fu.:J9:c;:~riilh~r~uil~

P,pJ~~Q~; ':m~t~.$tf!'J}.f:l~t!.%.rJ~~~ !tJT?~~~_r!9mj;~H-~if~:~:~V~rri~1~ ~~mbar:r.a~.$.ihg -~-h~hfB.!~'~t~~~~~~~!~~j~?::~t~li

~~9.~~t;)J~lM~~
back:rrw brp~. ~burtt.s~:J.r~wq~.~~:t}~;gre:af:to.tQ~t~q~c_R. !TiY trt'<:>r:~ey. ~o ~1 :tan :put-ltt0.Werds;.the:'t.Ei!al. 1 d:e.'gr~~: ~:J~t{:1t:\. ~a:\~~Jll1ll)g:f.~

also hope that this school will be shut down (unless it receives proper accreditation) to prevent others from suffering as I
have.

-Katyln

My freshman year of college, I almost attended the AI in Shaumburg, "IL. But I was talked out of it by a counselor at a
community college near my house. Not only he, but many many many educators know how 'much of a scam these
schools are.

Do something about it. This isn't right.

-Marcel

As with most scams, they tell you what you want to hear, only to change things up in the background, and then when
brought to their attention they do you their best to convince you. If they can't they will push to get you out so they can
bring someone else in so they can make more money.

24

~---

g-otng to At of Pittsburgh online for almost 2 years now. Aside -from the _viol~_ons lncun:e<fiKsted oi'i~f~e
hor:nepage '~f '~~~alnc;>w.c.orp'1 , they al~o. :enrolleo me iA. the wrong cc;:~urse of ~twdy or -~~a~g$d' my .majqr Wf'igh:I .(jiic:ifl't

I've peen

becom _aw~:~t~~ot-. uhtlllcwas:se!it a co_py of my qurripuh.Jm after two :entirely -s~par~t~ r~_qu~.st-s,..th.Y: ~~!so J(~~J~ :me .~:c;1~t
. ~helr.-Gf.dit~-: l~~~~d..~: fo ;st~y -:~ .W11 urn~.s.tude~t.to stay. .on"_rny _parents insurafl~e . bubv~ CQOld' QfliY. c:tfft;lrd n~lf.)J~.e.11~S
t9t'* ,~~'f:'f~R(~~ntatfY;e i~~ai the,ir.:qreq1ts:Gq\J.rlt a~ . m9r~:th_a:~ ;a normal $C.~o<:ils :~.!"'~ !.;#9~J~.:- ~~-~ofl~i.~et~9Jf;\Jffi!il!J.~:a~'hj;l1f.

if~_ls :i:~-pf-~~1J!s;e;n,ot !!J~: ~~~;: _}l~cf 1_w~s r~rry_o.ve.d_ 'f'r:c;n:tq~y: p~r~nts if'l!?.~r.a.np~: :l;~o~;~ld.' !i~e:.r~::~<-~~, :~~~t:Wptf~%~~~1~~~~;?!
ffi.Y.fr1~11d!?, an~J:W}:IQ t;r!:iYe e~P-~m:~nced :At s mJtlStlces:first l'laA_.d.

> :;..

-~ - :;~:~:.. ::~~~-' ~.:.,..:;~;;;~

:;:::'-:;:

-Kiana

such frauds! there was no follow up post graduation, the financial process was nothing more than prying more money out
of my pockets. i truly regret attending the school!!!!!lll!!!lllll!!!!

-Karel

I have quite a few Amercian friends with bona fide degrees in engineering or medicine who have huge debts. The whole
issue of being saddled with debt just' to get a good education is questionable, but for a false degree it's adding insult to
injury.

-Patrick

I am still currently a student at the Art Institute of Fort lauderdale. I was a resident at the AI sunrise hall location up until!
the end of last quarter. Currently I am staying on the couch of a friends place due to the living habits are heathy and
livable. I am willing to speak out against the school for it's ill intent. The best ways to contact me would either be by email or phone (XXX-XXX-X.XXX).

-Richard

Took 3 classes which were billed $3991.83 to my financial aid and have received calls saying I still owe them about
$21 oo.oo. ;rJ}~f;,:6ai!.~~ailfd:JQ.:.~ J?r~YJH~~ ~l)_yi;icc~imfi~9ra5i:~9;:fici.~l:t.h.s0X~iiijftat~'th~~~~~iie'Hge$:: Received one
software package and it was unuseable.

-Chris

Ai has been disappointing me for years. Time to get ~ack what's rightfully mine. Thank you.

25

- - - - _

__,_.:..____

__;__ __,.;..:..____ _.;...

.,....:;.;..
...::;
--~
-=
"...:..;";_,:,'
_

_:....,;. --..;..._;..........-.;_

MtJ?~r~~~tf~liR~CiipJ~l~t~Ji~: ~ lr.ect~t witl:l ~D~G them~~~~es :~rid their -~~~a~C.i~L~'W~~~rs;~; J~?.~~O; ;s6dt_H~J1iy~t~iw:~~rtir:ig
~F~~-11~~ 1:~ii.gQi\;Q~. ~~:~ no trouole :WI~h ~h~ Acadef'!ll'?~ or. ABA: . ~y. ~ra~C!4~fi!1~<Cd~rq(~Jq!i!S :W~thi~~~C-~n;~~tly..._. cDont
Kll~w: f\<l;lw ; ~liis;:Wilf _.wpf~_.with your. Jnvestig(3tion but 1 wa,rited td':p-ost .!his: ~~n}iWay;::attie.~l~for: ~qti~ort' f~ ~ff: ~tudents
dsfi~Y'~~d.,jiM#frlS,itimP.~n1.~

.:

.~:. :. . ~;:,~;i:~;~::i:Hi~fit;:;:~+iif' . h';~!i-V'~ :::: !~~;,:n:~<~.- ;: .

-Ashley

' former student; I attended the Art Institute of Las Vegas. I was pressured into funding my tuition with private student
loans from Sallie Mae, towards the end of my final year at the art institute the admissions said I couldn't enroll for the
following quarter claiming I owe them more money on top of the 100,000 I've accumulated in private sallie mae loans.

-Joshua

it's amazing for kids to have the want to go to college already in our society... and you guys are going to f*ck it up for
many of the future artists. we're artists .. we're starving already; gave up food for our cameras/etc; then you chew us up,
spit us out, and leave us with only debt..Pck you.

-Matthew

I attended the art institute of Orange County. Everything was for profit, even the so called "dorms" were a means to make
money off of the students. rn,er~ ~{fiirie(f "4-j~tiJs1il]to ~~ W(<j,Ji~l!t9J?ffi5P.'aiiin7iiifff~lifj_J_fJ:f~irf!i;ia;_~l:_1f!Pf:r.i:il}t,.

I am

-Lauren

a video production graduate from AI and I have been scammed, please help me and my fellow-students.

J
!

'j

I~w~s. idld'#yjr~y recrq#,eithat rh .employin~/1Jrale V?~~Ig~% a!f~'!rlifiicJ.~;~ati~~m~~vrt Y.~tM9'g~t;.a J~flg:rrer:~h:fij:tgT~~ mii' to

'ifP.fj_/}1 m{s:~afjj~s; :.: -~- ,_.:; . . .: :

.: Lif: . :

=< :~~;H;; ~ .. .:;?~~t~n:;._:;~!~:~fn~i~-;~:;~.;;3~ii~~-;. ; ~-:~:i=i~::" ~

26

~::~~I~Y ; :. ~~;

------"-

.. _- :. _- -...

.........::..::.~.;._.:.:.:

-Angela

I had a teacher there, te~ch the class for maybe two weeks. He then spent the rest of classes on his eel/phone towards
his clients with his other job. The students taught each other. I wanted to take the class over but the AI told me I had to
pay for it again! So either take an A- or pay for it again. So I took the grade and learned nothing. thP-YP(61tJ./$_~_y_ciiJ ~1qt
gt~P!ri~~ :f?UHg~Y::~p ~~~ to!Tow through. I pa.ve .Piece :Ci>f P.qper Jll/0rtH.~~o;~Q~~'f~f:~;$~~~:~rpuqwpn= d.tiiJt~'i;i. :
in .my
rre1f1{EiS::'fl-~1h ;~;~}'!eY. B.rrt~r(fbfe!

:Nfiieb:

-Cara

THIS IS THE WORST SCHOOL BY FAR!!!! They re-use the same teachers over and over, quality education is poor, they .
care nothing for the students because all they want is money!! WHAT A POOR CHOICE FOR A SCHOOL!!!!

27

===.==;:;._.:;;==.=--- - -

Meeting3
When: Thursday, October 21 , 2010 4:00 PM -4:30 PM (UTC-05:00) Eastern Time (US & Canada).
Where: Lincoln Room, WHCC
Note: The GMT offset above does not reflect daylight saving time adjustments.

Jamie Rubin, BC Partners has requested this meeting.

Thanks.
Elizabeth
Elizabeth A. M. McFadden
Assistant General Counsel for Regulatory Services
Office of the General Counsel
l..)'.S. Department of Education
400 Maryland Ave., S\V.
Washington, DC 20202
Telephone: 202-401-6307; Fax: 202-260-5085
elizabeth.mcfadden@ed.gov

Sellers, Fred
From:
Sent:
To:

Cc:
Subject:

Sellers, Fred
Tuesday, December 29, 2009 12:07 PM
'Hill, Marshall'
Patterson, Patricia
RE: Reminder concerning January 4, 201 o deadline

Marshall
As I understand it, the students would be eligible who are taking online coursework since we only look to legal
authorization in the home State, in U of P's case, Arizona. I expect they must be trying to set up a brick-and-mortar
facility in NY. In that case we would require that they have legal authorization from NY State for their offerings at the
facility.

I am ccing Patty Patterson in FSA in case she wants to add anything I may be missing. She handles institutional eligibility
determinations.
Fred

From: Hill, Marshall (mailto:Marshaii.Hill@nebraska.govl

sent: Monday, December 21, 2009 11:47 AM

To: Sellers, Fred

Subject: RE: Reminder concerning January 4, 2010 deadline

Thanks, Fred. Kathryn Dodge and I are doing some work on issue 5. We're talking with a number of
accreditors, etc. to see how we can build some agreement about how to move forward. Conference ~all
tomorrow. Ifwe.have anything to suggest after that, we'll be sure to get it to you before Jan 4.
Related topic ~~
Dan Golden of Bloomberg News is doing a story on the University of Phoenix's 15 year struggle to gain
approval to operate in New York. He called me last week to talk about UoP's approvals in Texas and Nebraska;
I handled the relevant state agency work in both states. H'e's also following the current neg-reg work. Dan asked
me a question that I can't confidently answer.

Presumably there are many New Yorkers taking courses online from UoP. Because UoP isn't authorized in NY,
does that mean that those students can't get federal financial aid? I can forsee several possibilities (UoP online
authorized in AZ, etc.) but perhaps you can provide an answer.
Best wishes - and you really should consider taking some leave time (to enjoy the snow, if nothing else)!
Marshall

I
I

Marshall A Hill, Ph.D.

Executive Director
Coordinating Commission for Postsecondary Education
P.O. Box 95005
Lincoln, NE 68509
(402) 471-2847 FAX: (402) 471 -2886
Marshall. Hill@nebraska.gov

- -- - - ---- ----- - -

From: Sellers, Fred [mailto:Fred.Sellers@ed .gov]

Sent: Friday, December 18, 2009 5:19PM
To: amodar@nacacnet.org; leg@usstudents.org; agross@nacubo.org; amlrando@naccas.org; bbrittingham@neasc.org;
moranr@aascu.org; carol.lindsey@tgslc.org; chris.young@wonder1ic.com; dhawklns@nacacnet.org; drhodes@sva.edu;
jsimpson@fscj.edu;
dave.waldschmidt@wonderlic.com; dloonin@oclc.org;
gerkesj@oasfaa.org; jzanders@nvcc.edu; jpp2@tamu.edu;
maureen@naicu.edu;
mcmmis@accsc.org; ghil asburv@unc.edu; rwolff@wascsenior.org; rwilliams@pirq.org; rcheath@aacc.edu;
sjtanner@nlnac.org; slehr@fs<j.edy; swilliams@mercy.edu; t w hartle@ace.nche.eclu; tjones@aicuo.edu;
'Meyersv@rilsu.edu'; rlui@wascsenior.org; rwolf@wascsenior.org; Dodge, Kathryn G. (NH); Hill, Marshall; Craig Bagemihl;
fxcameo@gmail .mm; McCullough, carney; Kolotos, John; Guthrie, Marty
Subject: Reminder concerning January 4, 2010 deadline
Some committee members indicted t hey may be providing f urther information or comments regarding the issues under
consideration. As we indicat ed at our last session, we need any additional information or comments not later than
January 4, 2010, to ensure their appropriate consideration.

I will be around through t he holidays if anyone has any questions or concerns as I am not taking any leave.
I hope everyone has a wonderful holiday season.
Fred

Fred Sellers
Senior Policy Analyst
U.S. Department of Education
1990 K Street. NW. Room 8021
Washington, DC 20006
Phone: (202) 502-7502
Fax: {202) 502-7.874

Se llers, Fred
Fro m :

Sent:
T o:

Subj ect:

Hill, Marshall [Marshaii.Hill@nebraska.gov]

Monday, Oecember21, 2009 11:47 AM
Sellers, Fred
RE: Reminder concerning January 4, 2010 deadline

Thanks, Fred. Kathryn Dodge and I are doing some work on issue 5. We're talking with a number of
accreditors, etc. to see how we can build some agreement about how to move forward. Conference call
tomorrow. If we have anything to suggest after that, we'll be sure to get it to you before Jan 4.
Related topic --
Dan Golden of Bloomberg News is doing a story on the University of Phoenix's 15 year struggle to gain
approval to operate in New York. He called me last week to talk about UoP's approvals in Texas and Nebraska;
I handled the rel~vant state agency work in both states. He's also following the current neg-reg work. Dan asked .
me a question that I can't confidently answer.
Presumably there are many New Yorkers taking courses online from UoP. Because UoP isn't authorized in NY,
does that mean that those students can't get federal financial aid? I can forsee several possibilities (UoP online
authorized in AZ, etc.) but perhaps you can provide ananswer.
Best wishes - and you really should consider taking some leave time (to enjoy the snow, if nothing else)!
Marshall

Marshall A. Hill, Ph.D.

Executive D irector
Coordinating Commission for Postsecondary Education
P.O. Box 95005
Linco ln, NE 68509
(402) 471-2847 FAX: {402) 471 -2886
Marshaii.Hill@nebraska.gov

From: Sellers, Fred [mailto:Fred.Sellers@ed.govl

Sent: Friday, December 18, 2009 5: 19 PM
To: amodar@nacacnet.org; leg@usstudents.org; agross@nacubo.org; amirando@naccas.org; bbrlttingham@neasc.org;
mornnr@aascu.org; carol.lindsey@tgslc.org; chris.young@wonderlic.com;.dhawkins@nacacnet.org; drhodes@sva .edu;
dave.wldschmldt@wonderlic.com; dloonin@nclc.org; eneely@kaplan.edu; janetd@nslp.org; jsirripson@fscj.edu;
berkesj@nasfaa.org; jzanders@nvcc.edu; jpp2@tamu.edu;
@gmail.com; maureen@naicu.edu;
m ccomis@accsc.org; phil asbury@unc.edu; rwolff@wascsenior.org; rwilliams@pirg.o.m; rcheath@aacc.edu;
sitanner@nlnac.org; slehr@fscj.edu; swilliams@mercy.edu; t w hartle@ace.nche.edu; tjones@aicuo.edu;
'Meyersv@msu.edu'; rlui@wascsenlor.org; rwolf@wascsenior.org; Dodge, Kathryn G. (NH); Hill, Marshall; Craig Bagemihl;
fxcameo@gmail.com; McCullough, carney; Kolotos, John; Guthrie, Marty
Subject: Reminder concerning January 4, 2010 deadline
Some committee members indicted they may be provid ing further information o r comments regarding the issues under .
con~icjeration . As we indicat ed at our Jast.session, we need any additional inf ormation or comments not later than
January 4, 2~10, to ensure their appropriate consideration.
1

I will be around through the holidays if anyone has any questions or concerns as I am not taking any leave.
I hope everyone. has a wonderful holiday season.
Fred

Fred Sellers
Senior Policy Analyst
U.S. Department of Education
1990 K Street, NW, Room 8021
Washington, DC 20006
Phone: (202) 502-7502
Fax: (202) 502-7874

Sellers, Fred
From:

Clough, Ann
Wednesday, October 28, 2009 9:21AM
McCullough, Carney; Sellers, Fred; Kolotos, John; Guthrie, Marty
FW: Student Lending Analytics Slog

Sent:

To:
Subject:

I
From: nor.eply+feedproxy@google.com [mailto:noreply+feedprox}t@google.com] On Behalf Of Student Lending
Analytics Blog

Sent: Wednesday, October 28, 2009 4:17 AM

To: Clough, Ann
Subject: Student Lending Analytics Blog

Student Lending Analytics Slog

The Early Bird Gets The .

Let's Keep An Eye On T his Development.

Could This Be Another Re ason Income-Based Repayment Has Had Such Low Take
Rates?

SEC To Probe Revenue Recognition Practices of University of Phoenix Parent

Loan Forgiveness. For Helicopter Pilots At Defunct Training School

First Marblehead Earnings: GoodNews, Bad News

The Changing Landscape of Financial Literacy

The Early Bird Gets The ...

Posted: 28 Oct 2009 01:13AM PDT

Financial Aid. A cautionary tale in Oregon about the importance of knowing the deadlines ~o apply for federal or
s_tate grants.

Let's Keep An Eye On This Development. ..

Posted: 28 Oct

2009

12:46 AM PDT

What may have been lost in the Apollo Group's (par ent of University of Phoenix) conference call today
were these statements from senior management about how they are looking to improve their completion rate and
gettip.g a better handle on the commitment of students prior to having them take on Title N loans (note that SLA
Blog had called for banning ATB tests in a n .e arlier post):
"We also continue to invest 4t our admissions process and are increasing the development and uses
sophisticated tools to identify students with the greatest likelihood of success. We currently have a pilot
program in place which combines stronger commitment of time and energy from students upfront with more
help and assistance from us prior to their formal enrollment and application for Title IV loans.
Additionally we rolled out a responsible borrovving calculator to assist students as they evaluate the amount of
Title IV funds they need for their education. Now importantly our intention by taking these steps particularly
with entry level students in the area of our unjversity where we've - we have w~ll we've open enrollment -environme.n t we can get better at determining their commitment and readiness to enroll in college courses,
prior to their taking on the burden debt.
The problem balancing open access to education with the responsibility of completion is not unique to the
private sectors. It's a national problem in higher education. But for Apollo we feel its even more importance
that we take leadership role in investing in the policies, systems and process to protect students and that put
us on the leading edge of keeping the student success and education experience front and center.

If this results in slower a slower rate of growth in the future in new student enrollment, we would gladly made
this trade off for higher retention and better student outcomes for those enrolled in the University of Phoenix.
In addition the financial impact should ultimately be positive-for Apollo, if students that enroll and repay have
a far greater impact on our profitability then these that enrolled for a sho1t-time to try their hand at college
and then drop-out."
Let's see how this plays out with completion rates over the next several quarters. Will other for-profits follow suit?
Is this.all an attempt to stay one step ~head of where the regulators seem to be headed?

Could This Be Another Reason Income-Based Repayment Has Had Such Low
Take Rates?
Posted: 27 Oct 2009 09:22 PM PDT
The income-b ased rep ayment option was announced with great fanfare in July of this year. By basing a
borrower's monthly loan payments on their income levels, it was hoped that IBR would provide relief to increasingly
strapped borrowers. There are signs that the implementation of this new program may be lacking. As I posted
earlier t h is month, a technical glitch in that a borrower didn't have the option of selecting "IBR" on a drqpdown
menu on the loan repayment site. At the same time, the Depa1tment had indicated that there had only been 4,500
approvals by early October.
2

Now, this comment from a frustrated IBR seeker:

I submitted the IBR application that I tracked down after considerable digging through multiple web pages.
This was submitted months ago. Today (10/26/09) I received a letter that stated:
-------------------- [BEGIN LE'ITER] ------- ------------Dear Borrower,
We have received your Income-Based Repayment application. We are unable to approve your application for
the following reasons:
Other: Please submit an ACS IBR application form in order to qualitY for the IBR

If you have further questions or concerns, please feel free to call our offices Monday through Friday 8:00 am
to 11:00 pm est at (Boo) 835-4611 or visit our web site at www.acs-education.com
Sincerely,
Processing Specialist
------- ----------------- [END OF LETTER] -------------

So many questions about this. 1) Wh~ do they not direct you to the specific address on their site to find the
form'? Despite looking throughout the site, it is not there to my knowledge. 1a) Why is there no ~earch
option?
2) In what way is this letter even remotely helpful? Seriously? That is what you have to say? Thanks for
nothing.
3) WhywouldACS ~ve a different form than the one putout by the Feds? lsn't this all one program?
4) College Loan Corp, to whom I sent another inquiry, replied with similar circular logic, stating that I should
call ACS or the Department of Education.
Methinks that no one wants this program to work!
Any thoughts? Any successes? Anyone know how to get this damn thing through??

SEC To Probe Revenue Recognition Practices of University of Phoenix Parent

Posted: 27 Oct 2009 09:06PM PDT
Apollo Group, the parent company of the University of Phoenix, is facing an informal probe from th e SEC into

their revenue recognition practices. This probe, disclosed by the company in their quarterly conference call
today, led to the stock dropping as much as 20% in after-market trading. Details seemed scant, which may have led
3

to the sharp sclloff, given how much investors detest uncertainty:

"Apollo, parent of the University of Phoenix, said on Tuesday that it intends to cooperate with the U.S.
Securities and Exchange Commission's inquiry, but djd not give further details. The scope, duration or
outcome of the inquiry could not be determined, Apollo said. A spokeswoman for Apollo, Sara Jones, said the
information in the statement was all it had at the moment."
This is how they disclosed the probe in the 10-K, which was also fi1ed today:
"We are also subject to various other lawsuits, investigations and claims, covering a range of matters,
including, but not limited to, claims involving shareholders and employment matters and an informal inquiry
by the Enfo~cement Division of the Securities and Exchange Commission regarding our revenue recognition
practices."
Here are the revenue recognition policies disclosed in their 10-K filing which are not particularly enlightening:
"Our educational progra.m s, primarily composed of University ofPhoenix programs, range in length from oneday seminars to degree progrc1ms lasting up to four years. ~udents in University of Phoenix degree programs
generally enroll in a program of study encompassing a series of five- to nine-week courses taken consecutively
over the length of the program. Generally, students are billed on a course-by-course basis when the student
. first attends a session, resulting in the reco~ding of a receivable from the student and deferred revenue in the
amount of the billing. University of Phoenix students generally fund their education through grants and/or
loans under various Title IV programs, tuition assistance from their employers, or personal funds."
The Wall Street Journal provided some of tl1e details of the company's current poliCies in this area:
"Analysts on the conference call focused their questions on the company's revenue recognition policy, asking
Apollo about its attendance records and how the company books revenue if a student withdraws early from a
course.
. The company said it stops recognizing revenue once a refund is processed, not immediately upon a student's
withdrawal, but does adjust in case a refund is delayed for any reason. All revenue for the full course is
recognized if a student attenQ.s more than 6o% of the classes."
The company in their earnings release, also indicated that they had entered settlement discussions with plaintiffs
in an Incentive Compensation False Claims Act litigation and estimated their exposure at over $8o million:
"On September 30, 2009, University of Phoenix, a subsidiary of Apollo Group, Inc., confirmed that it has
entered into settlement discussions with plaintiffs to resolve the Incentive Compensation False Claims Act
litigation pending in the U.S. District Court for the Eastern. District of California. There is no assurance that a
settlement will be reached. Pending the outcome of these discussions, University of Phoenix and the plaintiffs
jointly requested a stay af all litigation proceedings for 45 days, which was granted on October 2, 2009. In
connection with this matter, the Company recorded a pre-tax charge of $8o.s million in the fourth quarter of
fiscal2009 which is tile Company's best estimate of the loss to be incurred in connection with this matter,

including associated expenses."

Here is how the Wall Street Journal described this possible settlement:
"Apollo S!J.id that it took an $8o.s million charge in its fourth fiscal quatter to cover the costs of a possible
settlement of a whistleblower's suit pending in U.S. District Court in Sacramento, Calif. The suit alleged that
Apollo owed the government refunds on billions in financial aid funds because it allegedly paid recruiter
incentives based on the number of students they enroll. Federal education law bars such incentive payments."

Loan Forgiveness ... For Helicopter Pilots At Defunct Training School

Posted: 27 Oct 2009 08:28 PM PDT
CIT's Student Loan Xpress has reached a settlement with 12 state's attorneys general which will benefit students of
Silver State Helicopters, which closed abruptly in February 2008, leaving students with mounting private student
loan debts and no FAA certifications. As reported by the Press-Enterprise (Riverside, CA), students who received
no training will receive a 75% reduction in their student loan debt while others will see debt reduction.on a sliding
scale based on. the hours of training they completed. The total settlement amount came to almost $113 million.
Key Bank, Silver State's preferred lender in 2003 and 2004, has yet to reach a settlement with students. Federal
student loans allow students to discharge their loans when the school that they are attending closes
while private loans do not.

11

First Marblehead Earnings: Good News, Bad News

Posted: 27 Oct 2009 o8:n PM PDT
Here is their 1Q 2010 announcement.
Good news: Boosted cash on their balance sheet to $475 million following quarter-end:
. Completed sale of private loan portfolio for $121.5.million from their Union Federal Savings Bank
(generating a $121.5 million loss in the process).
Refund of $177 million from the Internal Revenue Service
Badn.ews:
Company continues to burn cash at rate of $14.7 million in the quarter. With their significant cash balances,
they appear to have the runway to develop and refine a new business model while awaiting for the
secondary markets to recover (if they ever do).
To the extent that FMD is a proxy for the private loan securitization markets, their stock chart seems to be

signaling that the market doesn't anticipate a bounceback anytime in the near future.

The Changing Landscape of Financial Literacy

Posted: 27 Oct 2009 07:43 PM PDT
Here is the presentation I delivered at the NYSFAAA conference today in Saratoga, New York: Download
NYSFAAA_ Conference_Financial_Li teracy_ FINAL
Thanks to the conference committee for the opportunity to present SLA's research on the topic as well as the results
of the financiallitera<:y survey completed in September. It was heartening to see the number of attendees interested
in either developing a new program or looking for ideas on how to improve their existing financial literacy offering.
Look for more on this topic in the weeks ah~d from SLA.

You are subscribed to email updates from Student Lending Analvtics Blog
To stop receiving these emails, you may unsubscribe now.

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Sellers, Fred
From:
Sent:
To:
Subject :

Elaine Neely (eneely@kaplan.edu]

Monday, October 26, 2009 5:15 PM
Sellers, Fred
Out of Office: Negotiated Rulemaking: TEAM 1- Program Integrity. Welcome from Carney
McCullough and Fred Sellers

I am out of the office in meetings until October 28th. If you need immediate assistance,
please contact Sandra Kay at 770-776-5024 or skay@kaplan.edu .

Sellers, Fred
Gilcher, Kay
Tuesday, July 21, 20.09 11:11 AM
Macias, Wendy; Bergeron, David; Sellers, Fred; Finkel, Jessica; Kerrigan, Brian; Kolotos,
John
RE: Revised Team V NPRM incorporating responses to OMB and SBA passbacks

From:
Sent:
To:
Subject:
(b)(5)

I went to t he University. of Phoenix website and did not find a bachelor's degree in liberal arts/general st udies/etc.- only H.i~

a BS in Communications and an associate's degree in General Studies offered by Axia College.

Fr:om the U of Phoenix website (re: Axia College) -- The Associate of Arts with a concentration in General Studies
provides students a foundation in liberal arts and sciences based on a survey of mathematics, physicC!I and life

1
.-~..::1.'~
t::~

~:;;~

sciences, humanities, social science, and technology. Students will learn to apply effective communication skills, as

directed, for informal; formal, and quantitative tasks and will become conversant with the values and terminology of a
variety of academic disciplines. Students also will be able to access Information resources, evaluate them for
credibility and relevance, and use the sources to present a wide range of alternatives.

From: Macias, Wendy

>1~:

-::.:

Sent: Tuesday, July 21, 2009 9:53AM

To: Bergeron, David; Sellers, Fred; Finkel, Jessica; Kerrigan, Brian; Gilcher, Kay; Kolotos, John
Subject: RE: Revised Team V NPRM incorporating responses to OMB and SBA passbacks
:1~:

': ~ ~
(~'<,

------------------~-~=

;.:;
~ ~---

!;;;~

lr;-1
,,

.r~.-~
./

~---------------------------------------.~------------------------------------~

~:~~

(b)(S)

From: Bergeron, David

Sent: Tuesday, July 21, 2009 8:54 AM

To: Madas, Wendy; Sellers, Fred; Finkel, Jessica
Subject: FW: Revised Team V NPRM incorporating responses to OMB and SBA passbacks

FYI
From: Mar, Sharon [mailto:Sharon_Mar@omb.eop.gov]

Sent: Monday, July 20, 2009 5:04 PM

To: Higgins, Shannan
Cc: Kane, John; Kolotos, John; Kerrigan, Brian; Bergeron, David; Finley, Steve; Jenkins, Harold; McFadden,
Jablonski, Sandy; Y9ung, Leslie
Subject: RE : Revised Team V NPRM incorporating responses to OMB and SBA passbacks

.. ~ .
~Iizabeth;

'

.;

.. ...

1 ... ..

From: Higgins, Shannan [mallto:Shannan.Higgins@ed.gov]

Sent: Friday, July 17, 2009 2:53PM

To: Mar, Sharon
.
Cc: Kane, John; Kolotos, John; Kerrigan, Brian; Bergeron, David; Finley, Steve; Jenkins, Harold; McFadden, Elizabeth;
Jablonski, sandy; Young, Leslie
Subject:. Revised Team V NPRM Incorporating responses to OMB and SBA passbacks

Shannan E. Higgins
Deputy Assistant General Counsel
Division of Regulatory Services, Office ofthe General Cow1sel
U.S. Department ofEducation
400 Maryland Avenue, SW.
Washington, DC 20202-2110
2

(202) 401-6285 (direct dial)

(202) 260-5085 (fax)

...
, ...
' 0

-....

,.

L.

Sellers, Fred
From:
Sent:

To:

Subject:

Macias, Wendy
Saturday, June 06, 2009 9:23AM
Macias, Wendy; Bergeron, David; Bauman, Barbara; Butler, Jacq~elyn; Chase, Patty; Conner,
Donald; Crusoe, Vanessa; Finkel, Jessica; Freeman, Vanessa; Gaina, Jean-Didier; Gilcher,
Kay; Guthrie, Marty; Harris, Nikki; Kerrigan, Brian; Kolotos, John; Madzelan, Dan; Maimer,
Pamela; McArdle, Sophia; McCullough, Carney; Mclamon, Gail; Mike, Joe; Miller, Mary;
Moran, Pamela; Nicholson, Rochell~; Sanders, P.J.; Sellers, Fred; Smith, Brian; Smith,
Kathleen; Clough, Ann
FW: Update re: outreach on Deutsche Bank research report on neg reg sessions

(b)(5)

The transcripts for t he two conference calls on Friday May 29 will be posted to our neg reg p<;Jge at
http://www.ed.gov/policy/highered/reg/hearulemaking/2009/negreg-summerfall.html

From: Shireman, Bob

Sent: Saturday, June 06, 2009 8:09 AM
To: Ritsch, Massie; Smith, Zakiya; Hamilton, Justin; Macias, Wendy
Cc: Maoheimer, Ann
Subject.: RE: Update re: outreach 01_1 Deutsche Bank research report on neg reg sessions.
Thanks.
(b)(5)

-Bob
From: Ritsch, Massie
Sent: Friday, June OS, 2009 7:32 PM
To: Smith, Zakiya; Shireman, Bob; Hamilton, Justin; Madas, Wendy
Subject: Update re: outreach on Deutsche Bank research report on neg reg sessions
Bob, Zakiya, Justin and Wendy,
An update before the w eekend: This afternoon and evening I touched base with a variety of folks re: t he Wall Street
reaction to Deutsche Bank's report. I spoke with Harris Miller at CCA and spoke to .o r left"msgs for OeVry, Apollo and
Kaplan. The message I relayed to all is below.

(b)(5)

I'm out of the office Monday-Wednesday but reachable by e-mail or cell If needed.
Have a good weekend.
Best,
. Massie
Massie Rltsch
Deputy Assistimt Secretary for External Affairs & Outreach
U.S. Department of Education
(202) 260-2671
Cell: 202-365-8225

massle.ritsch@ed.gov

From: Ritsch, Massie

sent: Friday, June 05, 2009 7:22PM
To: 'rebar@career.org'
. Cc: 'Harris Miller'; 'Bob Cohen'
Subject: Touching base re: Deutsche Bank research report

Reba,
I spoke to Harris earlier this evening, and to Bob Cohen on Thursday, but I wanted to share with you the same
information. Here at the Dept. of Education we saw Thursday's Deutsche Bank report that misct,aracterized calls
we've had with the "traditional" higher ed sector. I wish I had a transcript or replay to give you of the calls we did
with the nonprofit associations and with student advocates, but I don't. At the Department, we cton't routinely record
2

or transcribe our frequent conference calls with stakeholder groups-very few of which draw more than 600
participants, as our call with investors and analysts who follow the education industry did on Friday, May 29. We did
record and transcribe that one, as well as another call with the career/proprietary college industry that some analysts
listened to, because replays and transcripts seem to be standard practice in the investment industry. (1 have attached
transcripts of both of those calls here.) In hindsight, I wish we had transcripts of all four calls we did last week,
because then you'd see that the message and tone were consistent in all of them.
Bottom line: If you heard one of our calls last week, you essentially heard them all. Bob Shirem~n talked participants
through the Federal Register notice, the schedule for hearings and rulemaking, and took a few questions.
In response to one questioner on one of the calls, Bob said that the Department of Education would be concerned
about maltreatment of students at any type of_institution they attend, be it nonprofit or proprietary (and, for that
matter, be it higher ed, K-12 or early ed). He said that public hearings such as those coming up would be the right
forum for anyone who had complaints about a particular institution or type of Institution to voice those. Bob's
message In all of our outreach regarding the upcoming hearings has been as he delivered it during theMay 29 call
with analysts and investors,.when he said:

"Our overall goal at the Department of Education in post-secondary education is to make sure that students potential students --whether young or old, have access to college, they have the information they need to make good
choices, and that they have good quality post-secondary education that serves both them as students and taxpayer as
well. If that's not the case, If there is not quality we want to know about it and if we can, we want to do something
about it. Whether that involves a public institution, a non-profit, a for-profit, a two-year, a four-year, a trade
program, whatever type or sector of institution, we want to do all we can to make sure that we good quality and get
the degrees and certificates that we need in this country.11
I know the investment community is reacting to a Deutsche Bank analyst's report that claims Bob used a different
tone In another conference call. That's simply not the case, as those who listened to those calls could tell .you. I have
provided individuals who were on those calls to the Deutsche Bank analyst, Paul Ginocchio, and we'll see what he
does with their perspective.
Hope this is helpful information for you.
Best,
Massie
Massie Ritsch
Deputy Assistant Secretary for External Affairs & Outreach
u.s..Department of Education
(202). 260.2671

massle.ritsch@ed .gov

Sellers, Fred
From:
Sent:

To: .
Subject:

Pauline Abernathy [pabernathy@ticas.org)

Sunday, June 06, 201 0 4:55PM
Pauline Abernathy
NYT: Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight

FYI. Today's NYT has a good article on gainful employment.

June 4, 2010
Facing Cuts in Federal Aid, For-Profit Colleges Are in a Fight
By TAMAR LEWIN

Any day now, the federal Department of Education will formally propose new regulations that would
cut off federal aid to for-profit colleges whose graduates cannot earn enough to repay their student
loans.
The regulations, known as the "gainful employment" rules, are an effort to rein in the high debt loads
students take on when they enroll in for-profit colleges that offer certificates or degrees in fields like
nursing or culinary arts. Stud~nts at for-profit colleges are much more likely than others to default on
their loans.
Under the regulations, a draft of which came out in February, for-profit colleges would not be eligible
to receive federal student aid if their graduates' debt load was too high to be repaid , over 10 years,
with 8 percent of their starting salary.
The Career College Association, which represents 1,450 for-profit colleges, is lobbying fiercely
against the regulations, which it argues are wrong-headed, unnecessary and likely to restrict needy
students' access to vocational training and higher education. With so many community colleges
overcrowded, the for-profit colleges say, their programs represent the nation's best hope for training
much-needed health care workers and technicians.'
The association criticizes almost every element of the regulations: the 8 percent debt limit, the 10year repayment period and the underlying idea that high debt loads lead to loan default..
"Shouldn't the Department of Education h~ve to present some facts and figures showing that there's
really a problem with students who have debt-income ratios above 8 percent?" said Harris Miller,
president of the association. "They haven't shown any evidence. And our own research shows that
students with high debt-income ratjos actually default less than students with tow debt-income ratios."
Arne Duncan, the secretary of education, has avoided demonizing the for-profit schools. In a May
speech, he said that despite a "few bad apples," for-profit colleges play a vital role in helping the
nation reach the Obama administration's goat of having the world's best-educated work force by
2020.
Advocacy groups representing students and consumers are less diplomatic. "These programs
overpromise, underdeliver and load vulnerable students up with way too much debt," said Chris
Lindstrom, higher education program director at the U.S. Public Interest Research Group, part of a
coalition of education, consumer, student and public interest groups supporting the regulations.
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In 2007, coalition members said, students at for-profit colleges made up only 7 percent of those in
higher education but 44 percent of those defaulting on federal student loans. Add ing new fuel to the
fire was a recent presentation at a New York conference for investors by Steven Eisman , a hedge..
fund manager known for having anticipated the housing market crash.
Mr. Eisman, whose early awareness of st(uctural problems in the housing market is described in
Michael Lewis's bestseller "The Big Short," said the for-profit education industry, like the subprime
. mortgage industry, has rested on the proliferation of loans to low-income people who would not be
able to repay them.
Without tighter government regulation, Mr. Eisman predicted, students at for-profit colleges will
default on $275 billion of student loans over the next decade.

"Until recently I thought that there would never again be an opportunity to be involved with an industry
as socially destructive and morally bankrupt as the subprime mortgage industry," said Mr. Eisman, of
FrontPoint Partnersr a unit of Morgan Stanley. "I was wrong. The for-profit education industry has

proven equal to the task."

In an interview last week, Mr. Eisman said the gainful employment regulations help change the forprofits' business model of aggres~ ively recruiting needy students eligible for maximum federal aid.
For-profit colleges typically get three-quarters of their revenues from federal grants and loans- and
some, like Apollo Group, which owns the University of Phoenix, nearly 90 percent, the legal limit.
Federal aid for students at for-profit colleges has more than quintupled, to $26.5 billion, since 2000.
"The University of Phoenix got about a billion dollars in Pell grants last year, and when you have any
institution growing that rapidly, it's only fiscally prudent to take a look at it," said Mark Kantrowitz of
Finaid.org, a financial aid Web site.
Sara Jones, a spokeswoman for Apollo, said in a prepared statement that with 458,000 students, the
University of Phoenix's status as the largest recipient of federal financial aid makes sense. The
statement also said that the university had a lower default rate than for-profits generally, and that in
the last year .half its students had borrowed less than the maximum available.
Federal law has long said that federal student aid can go only to for-profit colleges that "prepare
student for gainful employment in a recognized occupation." But this is the government's first effort to
define "gainful employment" in relation to graduates' ci~bt-to-income loads.
"With a record number of students attending programs that are subject to this requirement, and a
record amount of taxpayer money being used to enable them to attend, it's more important than ever
to make sure they're getting their money's worth," said Pauline Abernathy, vice president of the
Institute for College Access and Success, part of the coalition supporting the regulations.

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A study conducted by Charles River Associates for the Career College Association estimated that 18
percent of for-profit colleges' programs, serving a third of for-profits' students, would not satisfy the
gainful employment regulations. But supporters of the regulations said for-profit colleges tended to
have very high operating margins and could still make healthy profits if they lowered their tuition to
avoid running afoul of the new rules.
The regulations' 8 percent standard is not absolute: Programs that fail it could retain eligibility for aid if
their students achieved other standards like high levels of repayment or employment.
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For-profit colleges, which contribute generously to Democrats and Republicans alike, have
substantial influence in Congress. On the Career College Association 's annual Hill Day in March,
members met with aides in almost every Congressional office, telling them the regulations would limit
access to college for minority students with few other options.
After the draft regulations are issued, there will be a public comment period, and final rules
issued by Nov. 1, to take effect in July 2011 .

will be

http://www.nytimes.com/2010/06/06/education/06gain.html?ref=education&pagewanted=print
Pauline Abernathy
Vice President
The Institute for College Access & Success
www.ticas.org and www.projectonstudentdebt.org
We moved! TICAS' main number is now 510.318.7900. My direct line is 510.318.7903.